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. How is the price of the forward contract determined?
translation
Effective Hedge rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
an estimate of aggregate rate

2. All other currency trading with USD accounts for ____ of FX volume
21%
weakens
translation
more

3. 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
1.60 - Because you can buy more dollars
British Pound - Australian Dollar - New Zealand Dollar - Euro
liquidity and cash

4. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
6 weeks prior to Q/E
3 business days and beyond
strengthens
Spot price

5. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
Currency in which the entity reports results externally
exchange one currency for another
Forward contracts and Options
1 Case = 2 pizzas

6. 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
Mitigates risks by using hedging techniques
downward slope
less
lost

7. What is the ticker symbol for Brazilian Real?
BRL
Spot price
weakens
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

8. GBP-USD account for ____ of trading FX volume
British Pound - Australian Dollar - New Zealand Dollar - Euro
12%
Forward contracts and Options
average rate

9. ____________ should be denominated in the currency they will either be paid or received in...
BS account balances
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
foreign currency* rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)

10. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
B/S rate
CNY
interest rate differential

11. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
Forward Points
15 months in advance - layering on hedges through time
1 Case = 2 pizzas

12. What is cash flow used for?
Used to hedge against variability in expected future cash flows
direct
FX policy
30%

13. When is hedge rate published?
90%
1USD
6 weeks prior to Q/E
exchange one currency for another

14. USD-JPY account for ____ of trading FX volume
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
13%
financial risk
British Pound - Australian Dollar - New Zealand Dollar - Euro

15. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
largest - It is open 24 hours a day - except weekends
1 Case = 2 pizzas
valuable
more

16. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
financial strategy and financial policy
AUD
1 Case = 2 pizzas
foreign exchange forward contract

17. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
downward slope
MXN - EUR - CHF
financial risk

18. Give an example of one way to hedge a price increase in gas prices...
exchange rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Forward contracts and Options

19. An ___________ expresses the value of one currency relative to another
SEK
exchange rate
What is happening
British Pound - Australian Dollar - New Zealand Dollar - Euro

20. Revaluation can be hedged - while ___________ cannot be hedged
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
translation
financial risk
BRL

21. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
foreign currency* rate
actual weighted average contract rate
functional currency

22. US Treasuries is the second highest trading volume accounting for...
300 billion
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 share = 1/3 case
End of Period Rate (SCO-4 rate)

23. How many currencies use Direct method of quoting?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
There are FOUR
1.60 - Because you can buy more dollars
The difference between hedge rate and final effective hedge rate

24. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
direct
Currency of the respective operating unit's country
exchange one currency for another
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

25. A forward happens in...
1USD
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
End of Period Rate (SCO-4 rate)
3 business days and beyond

26. __________ is used for translation of foreign currency B/S to reporting currency
weakens
B/S rate
30%
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

27. 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...
1 Case = 2 pizzas
weakens
financial risk
is getting bigger

28. Treasury is responsible for managing companies funds and determining the firms'...
financial strategy and financial policy
P&L activity
Used to hedge against variability in expected future cash flows
liquidity and cash

29. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
Treasury Daily Spot Rate
largest - It is open 24 hours a day - except weekends
three digit ticker symbol ex: USD - United States Dollar

30. 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?
Spot price
Treasury Daily Spot Rate
foreign currency* rate
5%

31. The current market price for any currency pair is referred to as ?
Forward Points
Spot price
adverse fluctuations
3 business days and beyond

32. What is Functional Currency?
The currency of the primary economic environment in which the legal entity operates
Forward contracts and Options
1.60 - Because you can buy more dollars
Oracle

33. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
value
90%
300 billion
3 business days and beyond

34. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
three digit ticker symbol ex: USD - United States Dollar
13%
functional currency
Currency of the respective operating unit's country

35. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
The calculation is the same - but instead of adding forward points you subtract
adverse fluctuations
actual weighted average contract rate

36. If 1 pizza = 15 USD then ____ = 1/15 pizza
1USD
exchange rate
strengthens
financial strategy and financial policy

37. The rules for adding or subtracting forward points depend on whether it is quoted...
foreign currency* rate
1 Case = 2 pizzas
China - Malaysia - Colombia - Chile - Argentina
directly or indirectly

38. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
less
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
P&L activity
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

39. What dictates minimum and maximum hedge percentages?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
FX policy
financial strength
valuable

40. What instruments do we use to hedge?
is getting bigger
Forward contracts and Options
12%
Indirect quote

41. Give some examples of countries where its hard to hedge?
valuable
BS account balances
China - Malaysia - Colombia - Chile - Argentina
Effective Hedge rate

42. A Spot happens in...
Oracle
1 unit
1.60 - Because you can buy more dollars
two business days

43. What is Fair Value hedge program used for?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
12%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1.60 - Because you can buy more dollars

44. The ticker symbol for the Chinese Yuan
Currency in which the entity reports results externally
average rate
CNY
SFAS 52

45. Where are revaluations done?
Treasury Daily Spot Rate
FX policy
1 share = 1/3 case
Oracle

46. ____________ - foreign currency/rate = USD
1.40 - Because I would be able to buy more euros
End of Period Rate (SCO-4 rate)
Government regulation and cost of hedging
Indirect quote

47. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
financial strategy and financial policy
The currency of the primary economic environment in which the legal entity operates
is getting bigger
lost

48. What does it mean to hedge?
Government regulation and cost of hedging
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
three digit ticker symbol ex: USD - United States Dollar
This means 1 Euro measured against US Dollars is worth $1.40

49. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
direct
foreign currency* rate
What is happening
allow FX rate

50. What currencies use Direct method of quoting?
1.40 - Because I would be able to buy more euros
less
British Pound - Australian Dollar - New Zealand Dollar - Euro
exchange one currency for another