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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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1. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
actual weighted average contract rate
directly or indirectly
1.40 - Because I would be able to buy more euros

2. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
foreign exchange forward contract
lost
Effective Hedge rate
P&L activity

3. 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
downward slope
adverse fluctuations
SFAS 52

4. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
spot price x interest differential
Currency of the respective operating unit's country
The difference between hedge rate and final effective hedge rate
exchange one currency for another

5. What currencies use Direct method of quoting?
liquidity and cash
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
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
British Pound - Australian Dollar - New Zealand Dollar - Euro

6. What is cash flow used for?
Used to hedge against variability in expected future cash flows
BS account balances
foreign currency* rate
15 months in advance - layering on hedges through time

7. 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
actual weighted average contract rate
Government regulation and cost of hedging
Pound strengthens
APL rate

8. Where are revaluations done?
average rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Oracle
BRL

9. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
an estimate of aggregate rate
interest rate differential
valuable
currency options and forward

10. What is local currency?

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11. What is the ticker symbol for Brazilian Real?
BRL
liquidity and cash
financial strategy and financial policy
FX policy

12. What is Revaluation?

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13. Forward points is equal to...
spot price x interest differential
foreign exchange forward contract
downward slope
FX policy

14. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
spot price x interest differential
1.40 - Because I would be able to buy more euros
MXN - EUR - CHF

15. Treasury ensures that companies have ____________ to meet its obligations
There are FOUR
liquidity and cash
Currency of the respective operating unit's country
exchange one currency for another

16. Revaluation can be hedged - while ___________ cannot be hedged
Forward contracts and Options
translation
spot price x interest differential
valuable

17. GBP-USD account for ____ of trading FX volume
Pound strengthens
fx forward
adverse fluctuations
12%

18. What rate is used on the P&L?
downward slope
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
more
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

19. When is hedge rate published?
exchange rate
6 weeks prior to Q/E
90%
There are FOUR

20. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
three digit ticker symbol ex: USD - United States Dollar
financial strategy and financial policy
1 Case = 2 pizzas
What is happening

21. 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
3 business days and beyond
1.40 - Because I would be able to buy more euros
BS account balances

22. 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%
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
AUD
Treasury Daily Spot Rate

23. The Foreign Exchange market is the __________ market in the world
1 unit
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
strengthens
largest - It is open 24 hours a day - except weekends

24. What are the exceptions to the ticker naming convention?
There are FOUR
foreign currency* rate
Used to hedge against variability in expected future cash flows
MXN - EUR - CHF

25. The difference in interest rate is referred to as...
There are FOUR
Forward Points
5%
is getting bigger

26. How is the price of the forward contract determined?
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
actual weighted average contract rate
strengthens
Current market price - spot - plus or minus the difference between the interest rates of the two countries

27. The current market price for any currency pair is referred to as ?
F&O account 87503
AUD
End of Period Rate (SCO-4 rate)
Spot price

28. What is currency Translation?

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29. What dictates minimum and maximum hedge percentages?
Effective Hedge rate
End of Period Rate (SCO-4 rate)
Forward Points
FX policy

30. How many currencies use Direct method of quoting?
There are FOUR
The difference between hedge rate and final effective hedge rate
interest rate differential
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

31. Australian currency code is...
adverse fluctuations
Oracle
Mitigates risks by using hedging techniques
AUD

32. In general EUR-USD is involved in roughly ___ of all FX volume
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
Pound strengthens
90%
foreign exchange forward contract

33. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
Treasury Daily Spot Rate
foreign exchange forward contract
three digit ticker symbol ex: USD - United States Dollar
an estimate of aggregate rate

34. What rate is used to book daily transactions?
British Pound - Australian Dollar - New Zealand Dollar - Euro
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
Treasury Daily Spot Rate
financial strategy and financial policy

35. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Forward contracts and Options
financial risk
strengthens
3 -210 billion (3 trillion)

36. Forward points multiply the exchange rate by the...
spot price x interest differential
Currency in which the entity reports results externally
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
interest rate differential

37. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Mitigates risks by using hedging techniques
1USD
1.40 - Because I would be able to buy more euros

38. Treasury is responsible for managing companies funds and determining the firms'...
Pound strengthens
functional currency
financial strategy and financial policy
less

39. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
exchange one currency for another
5%

40. USD-JPY account for ____ of trading FX volume
more
British Pound - Australian Dollar - New Zealand Dollar - Euro
13%
The difference between hedge rate and final effective hedge rate

41. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
foreign exchange forward contract
foreign currency* rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries

42. A forward happens in...
more
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
average rate
3 business days and beyond

43. What would happen if the US interest rate was bigger than Mexico?
F&O account 87503
MXN - EUR - CHF
The calculation is the same - but instead of adding forward points you subtract
lost

44. Treasury's role is to identify risk - control to prevent erosion of...
directly or indirectly
financial strength
There are FOUR
fx forward

45. What does it mean to hedge?
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
SEK
Pound strengthens
exchange rate

46. What is the trading in volume for FX?
12%
Mitigates risks by using hedging techniques
3 -210 billion (3 trillion)
What is happening

47. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
90%
Indirect quote
The calculation is the same - but instead of adding forward points you subtract

48. All other currency trading with USD accounts for ____ of FX volume
an estimate of aggregate rate
adverse fluctuations
21%
foreign currency* rate

49. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
BS account balances
financial strategy and financial policy
Pound strengthens

50. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
two business days
British Pound - Australian Dollar - New Zealand Dollar - Euro
Effective Hedge rate
valuable

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Foreign Exchange Essentials

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