Test your basic knowledge |

Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
If you are not ready to take this test, you can study here.
Match each statement with the correct term.
Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.

1. A Spot happens in...
F&O account 87503
two business days
30%
actual weighted average contract rate

2. What is cash flow used for?
Forward Points
6 weeks prior to Q/E
Used to hedge against variability in expected future cash flows
functional currency

3. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
SFAS 52
spot price x interest differential
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

4. How is the price of the forward contract determined?
SFAS 52
Current market price - spot - plus or minus the difference between the interest rates of the two countries
adverse fluctuations
There are FOUR

5. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
CNY
is getting bigger
liquidity and cash

6. All other currency trading with USD accounts for ____ of FX volume
21%
adverse fluctuations
There are FOUR
30%

7. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
weakens
1 unit
less

8. Where are revaluations done?
Oracle
There are FOUR
FX policy
Current market price - spot - plus or minus the difference between the interest rates of the two countries

9. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Oracle
Currency in which the entity reports results externally
lost

10. The difference in interest rate is referred to as...
Currency of the respective operating unit's country
largest - It is open 24 hours a day - except weekends
FX policy
Forward Points

11. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
financial strategy and financial policy
1.60 - Because you can buy more dollars
SFAS 52
lost

12. The Foreign Exchange market is the __________ market in the world
largest - It is open 24 hours a day - except weekends
BS account balances
less
actual weighted average contract rate

13. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
value
The currency of the primary economic environment in which the legal entity operates
F&O account 87503

14. Treasury ensures that companies have ____________ to meet its obligations
more
The difference between hedge rate and final effective hedge rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
liquidity and cash

15. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
Currency in which the entity reports results externally
Process to convert an entity's BS & P&L from the functional currency to the reporting currency - BS is translated at BS rate - P&L is translated at APL rate
largest - It is open 24 hours a day - except weekends

16. What is the ticker symbol for Brazilian Real?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
is getting bigger
BRL
Current market price - spot - plus or minus the difference between the interest rates of the two countries

17. __________ is used for translation of foreign currency B/S to reporting currency
SEK
B/S rate
The calculation is the same - but instead of adding forward points you subtract
SFAS 52

18. A forward happens in...
Spot price
5%
two business days
3 business days and beyond

19. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
less
1 unit
China - Malaysia - Colombia - Chile - Argentina
BRL

20. What rate is used to book daily transactions?
AUD
financial strength
Treasury Daily Spot Rate
This means 1 Euro measured against US Dollars is worth $1.40

21. The timing of when we execute hedges drastically impacts the ____________ we achieve
adverse fluctuations
average rate
BRL
British Pound - Australian Dollar - New Zealand Dollar - Euro

22. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SEK
Currency of the respective operating unit's country

23. What are the exceptions to the ticker naming convention?
exchange one currency for another
MXN - EUR - CHF
lost
1.60 - Because you can buy more dollars

24. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
The currency of the primary economic environment in which the legal entity operates
Forward contracts and Options
1.40 - Because I would be able to buy more euros
less

25. US Treasuries is the second highest trading volume accounting for...
300 billion
SFAS 52
direct
three digit ticker symbol ex: USD - United States Dollar

26. What is the trading in volume for FX?
6 weeks prior to Q/E
FX policy
3 -210 billion (3 trillion)
Process to convert an entity's BS & P&L from the functional currency to the reporting currency - BS is translated at BS rate - P&L is translated at APL rate

27. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
exchange one currency for another
SFAS 52
strengthens

28. What is the purpose of hedging?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Forward contracts and Options
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Used to hedge against variability in expected future cash flows

29. What is local currency?

30. The current market price for any currency pair is referred to as ?
Spot price
directly or indirectly
foreign currency* rate
financial strength

31. USD-JPY account for ____ of trading FX volume
largest - It is open 24 hours a day - except weekends
13%
Mitigates risks by using hedging techniques
1 share = 1/3 case

32. What are the four major FX accounting guidances?
largest - It is open 24 hours a day - except weekends
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
two business days
End of Period Rate (SCO-4 rate)

33. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
liquidity and cash
direct
1 share = 1/3 case
This means 1 Euro measured against US Dollars is worth $1.40

34. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
weakens
SFAS 52
translation
Government regulation and cost of hedging

35. Hedging instrument used in cash flow program is...
is getting bigger
B/S rate
fx forward
currency options and forward

36. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
90%
3 business days and beyond
Used to hedge against variability in expected future cash flows

37. The currency ticker for the Sweden Kroner is?
SEK
direct
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
exchange one currency for another

38. What instruments do we use to hedge?
Forward contracts and Options
liquidity and cash
The difference between hedge rate and final effective hedge rate
currency options and forward

39. In a GBP-USD relationship - when the line in a graph is upward slope it means the __________ overtime because the exchange rate is getting bigger
The difference between hedge rate and final effective hedge rate
Currency in which the entity reports results externally
Forward contracts and Options
Pound strengthens

40. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
What is happening
21%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
China - Malaysia - Colombia - Chile - Argentina

41. What is Fair Value hedge program used for?
Process to convert an entity's BS & P&L from the functional currency to the reporting currency - BS is translated at BS rate - P&L is translated at APL rate
BS account balances
1USD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

42. GBP-USD account for ____ of trading FX volume
foreign exchange forward contract
BS account balances
12%
valuable

43. What is Functional Currency?
This means 1 Euro measured against US Dollars is worth $1.40
directly or indirectly
The currency of the primary economic environment in which the legal entity operates
adverse fluctuations

44. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
1USD
Currency of the respective operating unit's country
Effective Hedge rate
strengthens

45. Give an example of one way to hedge a price increase in gas prices...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
weakens
1USD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

46. How far in advance do we hedge?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
The currency of the primary economic environment in which the legal entity operates
Mitigates risks by using hedging techniques
15 months in advance - layering on hedges through time

47. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
1.60 - Because you can buy more dollars
actual weighted average contract rate
FX policy
valuable

48. In a downward slope that represents USD-JPY relationship a _____________ means that if you bough Japanese Yen at point A you made money at point B
downward slope
The difference between hedge rate and final effective hedge rate
300 billion
fx forward

49. How many currencies use Direct method of quoting?
allow FX rate
6 weeks prior to Q/E
There are FOUR
liquidity and cash

50. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
exchange one currency for another
foreign currency* rate
5%