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. What rate is used on the P&L?
The calculation is the same - but instead of adding forward points you subtract
direct
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
15 months in advance - layering on hedges through time

2. What rate is used on the balance sheet?
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
1.60 - Because you can buy more dollars
End of Period Rate (SCO-4 rate)
12%

3. What is currency Translation?

4. 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
Pound strengthens
strengthens
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
is getting bigger

5. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
BRL
three digit ticker symbol ex: USD - United States Dollar
APL rate
two business days

6. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
allow FX rate
financial risk
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
B/S rate

7. How many currencies use Direct method of quoting?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
strengthens
There are FOUR
1.40 - Because I would be able to buy more euros

8. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
This means 1 Euro measured against US Dollars is worth $1.40
Current market price - spot - plus or minus the difference between the interest rates of the two countries
valuable
21%

9. What instruments do we use to hedge?
foreign currency* rate
Forward contracts and Options
AUD
strengthens

10. In general EUR-USD is involved in roughly ___ of all FX volume
1 unit
Forward contracts and Options
90%
5%

11. Hedging instrument used in Fair Value Hedge program is...
value
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates
fx forward

12. Give an example of one way to hedge a price increase in gas prices...
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
The currency of the primary economic environment in which the legal entity operates
British Pound - Australian Dollar - New Zealand Dollar - Euro
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

13. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
actual weighted average contract rate
SFAS 52
Forward contracts and Options
1 share = 1/3 case

14. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
3 -210 billion (3 trillion)
There are FOUR
1 Case = 2 pizzas

15. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
1 Case = 2 pizzas
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
exchange one currency for another

16. What is Functional Currency?
Oracle
The currency of the primary economic environment in which the legal entity operates
15 months in advance - layering on hedges through time
value

17. What is reporting currency?
AUD
Currency in which the entity reports results externally
financial strength
Indirect quote

18. GBP-USD account for ____ of trading FX volume
The calculation is the same - but instead of adding forward points you subtract
CNY
translation
12%

19. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
21%
foreign currency* rate
90%
1.60 - Because you can buy more dollars

20. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
Forward contracts and Options
fx forward
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

21. What rate is used to book daily transactions?
Currency of the respective operating unit's country
Process to revalue the monetary BS accounts from: entered rate to B/S rate - prior month's B/S rate to current month's BS rates
more
Treasury Daily Spot Rate

22. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
three digit ticker symbol ex: USD - United States Dollar
two business days
1 unit
1USD

23. What is local currency?

24. In a USD-JPY relationship - when the line in a graph is upward slope it means the yen is weakening and dollar is strenghtening because exchange rate...
is getting bigger
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
APL rate
12%

25. All other currency trading with USD accounts for ____ of FX volume
Forward contracts and Options
direct
21%
adverse fluctuations

26. Treasury is responsible for banking requirements - funding for the business and managing...
CNY
financial risk
This means 1 Euro measured against US Dollars is worth $1.40
1 share = 1/3 case

27. 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
BS account balances
FX policy
two business days

28. What dictates minimum and maximum hedge percentages?
fx forward
average rate
FX policy
The calculation is the same - but instead of adding forward points you subtract

29. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
90%
weakens
an estimate of aggregate rate

30. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
End of Period Rate (SCO-4 rate)
fx forward
direct
China - Malaysia - Colombia - Chile - Argentina

31. If the Mexico rate is 5.25%/year and the US is 0.25%/year - What is the rate that would be used to calculate the forward rate?
valuable
strengthens
fx forward
5%

32. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
Forward Points
Treasury Daily Spot Rate
1.60 - Because you can buy more dollars

33. 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
There are FOUR
strengthens
downward slope
Currency of the respective operating unit's country

34. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
is getting bigger
AUD
SFAS 52

35. What is Revaluation?

36. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 unit
more
Government regulation and cost of hedging
1 share = 1/3 case

37. What are some of the reason not hedge at all or partially hedge in a few countries?
Effective Hedge rate
SFAS 52
foreign currency* rate
Government regulation and cost of hedging

38. ____________ is used for translation of foreign currency P&L to Reporting currency?
Pound strengthens
adverse fluctuations
directly or indirectly
APL rate

39. The rules for adding or subtracting forward points depend on whether it is quoted...
direct
more
directly or indirectly
Used to hedge against variability in expected future cash flows

40. An ___________ expresses the value of one currency relative to another
exchange rate
13%
Forward Points
MXN - EUR - CHF

41. What would happen if the US interest rate was bigger than Mexico?
actual weighted average contract rate
The calculation is the same - but instead of adding forward points you subtract
spot price x interest differential
BRL

42. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
The currency of the primary economic environment in which the legal entity operates
30%
foreign exchange forward contract
1.60 - Because you can buy more dollars

43. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
1 share = 1/3 case
financial risk
less

44. Australian currency code is...
End of Period Rate (SCO-4 rate)
three digit ticker symbol ex: USD - United States Dollar
AUD
financial strategy and financial policy

45. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
largest - It is open 24 hours a day - except weekends
Used to hedge against variability in expected future cash flows
Pound strengthens

46. Forward points multiply the exchange rate by the...
The currency of the primary economic environment in which the legal entity operates
foreign exchange forward contract
interest rate differential
Current market price - spot - plus or minus the difference between the interest rates of the two countries

47. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
China - Malaysia - Colombia - Chile - Argentina
Currency in which the entity reports results externally
valuable

48. What currencies use Direct method of quoting?
1.60 - Because you can buy more dollars
functional currency
downward slope
British Pound - Australian Dollar - New Zealand Dollar - Euro

49. ____________ should be denominated in the currency they will either be paid or received in...
The difference between hedge rate and final effective hedge rate
BS account balances
largest - It is open 24 hours a day - except weekends
lost

50. The ticker symbol for the Chinese Yuan
China - Malaysia - Colombia - Chile - Argentina
FX policy
CNY
30%