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. Hedging instrument used in Fair Value Hedge program is...
fx forward
more
two business days
F&O account 87503

2. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
BRL
Mitigates risks by using hedging techniques
6 weeks prior to Q/E

3. The rules for adding or subtracting forward points depend on whether it is quoted...
Spot price
directly or indirectly
1 unit
strengthens

4. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Indirect quote
1 unit
1.60 - Because you can buy more dollars

5. The current market price for any currency pair is referred to as ?
Indirect quote
Spot price
5%
Effective Hedge rate

6. What is local currency?

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7. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
AUD
exchange rate
downward slope
three digit ticker symbol ex: USD - United States Dollar

8. Hedging instrument used in cash flow program is...
functional currency
Oracle
currency options and forward
two business days

9. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
APL rate
actual weighted average contract rate
average rate
FX policy

10. The offset of revaluation is recorded to...
The currency of the primary economic environment in which the legal entity operates
P&L activity
exchange one currency for another
F&O account 87503

11. A forward happens in...
is getting bigger
foreign currency* rate
3 business days and beyond
average rate

12. 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?
5%
valuable
1 share = 1/3 case
interest rate differential

13. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
directly or indirectly
financial risk
Oracle

14. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
21%
Government regulation and cost of hedging
1 share = 1/3 case
F&O account 87503

15. What is the ticker symbol for Brazilian Real?
an estimate of aggregate rate
Currency in which the entity reports results externally
BRL
valuable

16. What dictates minimum and maximum hedge percentages?
BRL
P&L activity
FX policy
lost

17. If you are an American planning a trip to Europe - which exchange rate would you rather have to convert your US Dollars to Euro? 1.40 or 1.60?
is getting bigger
1.40 - Because I would be able to buy more euros
The difference between hedge rate and final effective hedge rate
3 business days and beyond

18. What is reporting currency?
Used to hedge against variability in expected future cash flows
Currency in which the entity reports results externally
financial strategy and financial policy
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

19. Give an example of one way to hedge a price increase in gas prices...
Pound strengthens
APL rate
Oracle
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

20. How is the price of the forward contract determined?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
BRL
AUD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

21. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
15 months in advance - layering on hedges through time
SFAS 52
value
less

22. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
weakens
strengthens
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
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

23. 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
financial risk
13%
BS account balances

24. What would happen if the US interest rate was bigger than Mexico?
adverse fluctuations
interest rate differential
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
The calculation is the same - but instead of adding forward points you subtract

25. In general EUR-USD is involved in roughly ___ of all FX volume
90%
actual weighted average contract rate
largest - It is open 24 hours a day - except weekends
There are FOUR

26. __________ is used for translation of foreign currency B/S to reporting currency
B/S rate
F&O account 87503
direct
Spot price

27. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
is getting bigger
APL rate
AUD

28. 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...
90%
is getting bigger
3 business days and beyond
1USD

29. What are monetary accounts?
SEK
1.40 - Because I would be able to buy more euros
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
12%

30. What currencies use Direct method of quoting?
less
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
weakens
British Pound - Australian Dollar - New Zealand Dollar - Euro

31. Treasury's role is to identify risk - control to prevent erosion of...
The difference between hedge rate and final effective hedge rate
more
functional currency
financial strength

32. The Foreign Exchange market is the __________ market in the world
1.60 - Because you can buy more dollars
largest - It is open 24 hours a day - except weekends
Currency in which the entity reports results externally
currency options and forward

33. The timing of when we execute hedges drastically impacts the ____________ we achieve
Mitigates risks by using hedging techniques
average rate
financial risk
Forward Points

34. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
BS account balances
15 months in advance - layering on hedges through time
1 Case = 2 pizzas

35. What is the purpose of hedging?
30%
1 share = 1/3 case
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

36. What are the four major FX accounting guidances?
China - Malaysia - Colombia - Chile - Argentina
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
adverse fluctuations
an estimate of aggregate rate

37. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
12%
direct
The calculation is the same - but instead of adding forward points you subtract
1 Case = 2 pizzas

38. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
P&L activity
Current market price - spot - plus or minus the difference between the interest rates of the two countries
5%

39. EUR-USD currency pair accounts for about ____ of all FX volume
90%
Oracle
Currency of the respective operating unit's country
30%

40. What rate is used to book daily transactions?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Currency in which the entity reports results externally
Mitigates risks by using hedging techniques
Treasury Daily Spot Rate

41. How do you read EUR-USD = 1.40
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
Effective Hedge rate
This means 1 Euro measured against US Dollars is worth $1.40
downward slope

42. A Spot happens in...
two business days
6 weeks prior to Q/E
Spot price
Currency in which the entity reports results externally

43. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
lost
weakens
three digit ticker symbol ex: USD - United States Dollar
BRL

44. 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
6 weeks prior to Q/E
adverse fluctuations
less
Pound strengthens

45. Australian currency code is...
The currency of the primary economic environment in which the legal entity operates
AUD
China - Malaysia - Colombia - Chile - Argentina
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

46. ____________ - foreign currency/rate = USD
fx forward
21%
Indirect quote
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

47. US Treasuries is the second highest trading volume accounting for...
300 billion
Used to hedge against variability in expected future cash flows
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

48. The currency ticker for the Sweden Kroner is?
actual weighted average contract rate
1 share = 1/3 case
SEK
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

49. All other currency trading with USD accounts for ____ of FX volume
spot price x interest differential
21%
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
functional currency

50. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
6 weeks prior to Q/E
foreign exchange forward contract
Effective Hedge rate
China - Malaysia - Colombia - Chile - Argentina