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

2. __________ is used for translation of foreign currency B/S to reporting currency
MXN - EUR - CHF
financial strategy and financial policy
less
B/S rate

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
two business days
Pound strengthens
actual weighted average contract rate
allow FX rate

4. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1USD
1.60 - Because you can buy more dollars
fx forward
less

5. What is the ticker symbol for Brazilian Real?
BRL
adverse fluctuations
1 unit
What is happening

6. GBP-USD account for ____ of trading FX volume
12%
exchange one currency for another
Forward Points
interest rate differential

7. What is Functional Currency?
Treasury Daily Spot Rate
Currency of the respective operating unit's country
The currency of the primary economic environment in which the legal entity operates
P&L activity

8. 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?
financial strategy and financial policy
1.40 - Because I would be able to buy more euros
exchange rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

9. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
Pound strengthens
weakens
Treasury Daily Spot Rate
12%

10. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Used to hedge against variability in expected future cash flows
Currency in which the entity reports results externally
Effective Hedge rate
spot price x interest differential

11. What is local currency?

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12. What currencies use Direct method of quoting?
British Pound - Australian Dollar - New Zealand Dollar - Euro
exchange one currency for another
BS account balances
valuable

13. Direct quote- _____________=USD
foreign currency* rate
exchange rate
1.40 - Because I would be able to buy more euros
foreign exchange forward contract

14. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
12%
valuable
British Pound - Australian Dollar - New Zealand Dollar - Euro
Mitigates risks by using hedging techniques

15. What are some of the reason not hedge at all or partially hedge in a few countries?
translation
1.60 - Because you can buy more dollars
Government regulation and cost of hedging
is getting bigger

16. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
The calculation is the same - but instead of adding forward points you subtract
Effective Hedge rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

17. 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
lost
MXN - EUR - CHF
financial strength

18. In general EUR-USD is involved in roughly ___ of all FX volume
translation
90%
What is happening
average rate

19. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
British Pound - Australian Dollar - New Zealand Dollar - Euro
fx forward
adverse fluctuations
less

20. EUR-USD currency pair accounts for about ____ of all FX volume
13%
Spot price
30%
more

21. The timing of when we execute hedges drastically impacts the ____________ we achieve
average rate
valuable
There are FOUR
value

22. What would happen if the US interest rate was bigger than Mexico?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
21%
1.40 - Because I would be able to buy more euros
The calculation is the same - but instead of adding forward points you subtract

23. Give some examples of countries where its hard to hedge?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
direct
foreign exchange forward contract
China - Malaysia - Colombia - Chile - Argentina

24. The offset of revaluation is recorded to...
an estimate of aggregate rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
F&O account 87503
functional currency

25. How is the price of the forward contract determined?
The difference between hedge rate and final effective hedge rate
30%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
value

26. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
financial strength
What is happening
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates

27. Revaluation can be hedged - while ___________ cannot be hedged
translation
Currency of the respective operating unit's country
B/S rate
Government regulation and cost of hedging

28. USD-JPY account for ____ of trading FX volume
translation
FX policy
Mitigates risks by using hedging techniques
13%

29. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
5%
more
SFAS 52
FX policy

30. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
BRL
30%
strengthens

31. A Spot happens in...
1 Case = 2 pizzas
Treasury Daily Spot Rate
15 months in advance - layering on hedges through time
two business days

32. ____________ should be denominated in the currency they will either be paid or received in...
13%
directly or indirectly
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
BS account balances

33. What is cash flow used for?
Used to hedge against variability in expected future cash flows
Spot price
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
exchange one currency for another

34. What rate is used to book daily transactions?
Treasury Daily Spot Rate
BRL
300 billion
spot price x interest differential

35. 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%
1.60 - Because you can buy more dollars
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

36. The current market price for any currency pair is referred to as ?
30%
F&O account 87503
Spot price
The calculation is the same - but instead of adding forward points you subtract

37. What is the purpose of hedging?
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
allow FX rate
downward slope
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

38. Hedging instrument used in cash flow program is...
valuable
fx forward
BRL
currency options and forward

39. B/S rate is used for revaluation of foreign currency transaction to...
FX policy
is getting bigger
functional currency
three digit ticker symbol ex: USD - United States Dollar

40. All other currency trading with USD accounts for ____ of FX volume
SFAS 52
21%
15 months in advance - layering on hedges through time
fx forward

41. Forward points multiply the exchange rate by the...
interest rate differential
directly or indirectly
actual weighted average contract rate
15 months in advance - layering on hedges through time

42. The rules for adding or subtracting forward points depend on whether it is quoted...
directly or indirectly
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
End of Period Rate (SCO-4 rate)
APL rate

43. US Treasuries is the second highest trading volume accounting for...
300 billion
more
Mitigates risks by using hedging techniques
P&L activity

44. ____________ is used for translation of foreign currency P&L to Reporting currency?
1 unit
largest - It is open 24 hours a day - except weekends
12%
APL rate

45. How far in advance do we hedge?
largest - It is open 24 hours a day - except weekends
Indirect quote
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
15 months in advance - layering on hedges through time

46. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
15 months in advance - layering on hedges through time
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. 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...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
is getting bigger
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
FX policy

48. A forward happens in...
direct
P&L activity
3 business days and beyond
6 weeks prior to Q/E

49. An ___________ expresses the value of one currency relative to another
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
exchange rate
MXN - EUR - CHF
financial strength

50. How is the hedge rate variance calculated?
90%
P&L activity
The difference between hedge rate and final effective hedge rate
spot price x interest differential