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Test your basic knowledge |
Foreign Exchange Essentials
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Subjects
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business-skills
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industries
Instructions:
Answer 50 questions in 15 minutes.
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study here
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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. The difference in interest rate is referred to as...
fx forward
currency options and forward
Forward Points
1.60 - Because you can buy more dollars
2. Treasury's role is to identify risk - control to prevent erosion of...
adverse fluctuations
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
downward slope
financial strength
3. What rate is used on the balance sheet?
FX policy
End of Period Rate (SCO-4 rate)
1USD
P&L activity
4. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Currency of the respective operating unit's country
more
functional currency
weakens
5. ____________ - foreign currency/rate = USD
This means 1 Euro measured against US Dollars is worth $1.40
Indirect quote
Pound strengthens
90%
6. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
1 share = 1/3 case
direct
downward slope
functional currency
7. Give an example of one way to hedge a price increase in gas prices...
Effective Hedge rate
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
8. What rate is used on the P&L?
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
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
SFAS 52
Government regulation and cost of hedging
9. Revaluation can be hedged - while ___________ cannot be hedged
average rate
translation
End of Period Rate (SCO-4 rate)
1.40 - Because I would be able to buy more euros
10. What is Functional Currency?
average rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
The currency of the primary economic environment in which the legal entity operates
fx forward
11. __________ is used for translation of foreign currency B/S to reporting currency
CNY
functional currency
China - Malaysia - Colombia - Chile - Argentina
B/S rate
12. Australian currency code is...
1 share = 1/3 case
weakens
AUD
1USD
13. The ticker symbol for the Chinese Yuan
value
CNY
Mitigates risks by using hedging techniques
financial strength
14. The currency ticker for the Sweden Kroner is?
There are FOUR
P&L activity
1 share = 1/3 case
SEK
15. How do you read EUR-USD = 1.40
This means 1 Euro measured against US Dollars is worth $1.40
two business days
300 billion
The difference between hedge rate and final effective hedge rate
16. The offset of revaluation is recorded to...
13%
CNY
F&O account 87503
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
17. Hedging instrument used in cash flow program is...
Forward Points
This means 1 Euro measured against US Dollars is worth $1.40
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
currency options and forward
18. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
three digit ticker symbol ex: USD - United States Dollar
financial strength
1 Case = 2 pizzas
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
19. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
financial strength
13%
weakens
MXN - EUR - CHF
20. In general EUR-USD is involved in roughly ___ of all FX volume
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
15 months in advance - layering on hedges through time
directly or indirectly
90%
21. US Treasuries is the second highest trading volume accounting for...
an estimate of aggregate rate
300 billion
End of Period Rate (SCO-4 rate)
Indirect quote
22. EUR-USD currency pair accounts for about ____ of all FX volume
financial strength
foreign currency* rate
valuable
30%
23. 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?
functional currency
1.40 - Because I would be able to buy more euros
Forward Points
90%
24. The Foreign Exchange market is the __________ market in the world
is getting bigger
largest - It is open 24 hours a day - except weekends
90%
Effective Hedge rate
25. The rules for adding or subtracting forward points depend on whether it is quoted...
functional currency
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
two business days
directly or indirectly
26. What is reporting currency?
directly or indirectly
Effective Hedge rate
Currency in which the entity reports results externally
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
27. What rate is used to book daily transactions?
There are FOUR
This means 1 Euro measured against US Dollars is worth $1.40
strengthens
Treasury Daily Spot Rate
28. What currencies use Direct method of quoting?
Currency in which the entity reports results externally
is getting bigger
Current market price - spot - plus or minus the difference between the interest rates of the two countries
British Pound - Australian Dollar - New Zealand Dollar - Euro
29. B/S rate is used for revaluation of foreign currency transaction to...
exchange one currency for another
more
1.60 - Because you can buy more dollars
functional currency
30. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
What is happening
F&O account 87503
APL rate
31. A Spot happens in...
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
12%
two business days
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
32. What instruments do we use to hedge?
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
strengthens
3 -210 billion (3 trillion)
Forward contracts and Options
33. What dictates minimum and maximum hedge percentages?
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
Currency in which the entity reports results externally
FX policy
Mitigates risks by using hedging techniques
34. What are the exceptions to the ticker naming convention?
MXN - EUR - CHF
financial risk
financial strategy and financial policy
interest rate differential
35. USD-JPY account for ____ of trading FX volume
13%
Currency of the respective operating unit's country
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
value
36. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
foreign exchange forward contract
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
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
China - Malaysia - Colombia - Chile - Argentina
37. An ___________ expresses the value of one currency relative to another
Government regulation and cost of hedging
Used to hedge against variability in expected future cash flows
Currency in which the entity reports results externally
exchange rate
38. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
is getting bigger
direct
P&L activity
China - Malaysia - Colombia - Chile - Argentina
39. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
End of Period Rate (SCO-4 rate)
Forward Points
functional currency
40. What is local currency?
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41. 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
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
directly or indirectly
6 weeks prior to Q/E
42. What is the trading in volume for FX?
Spot price
3 -210 billion (3 trillion)
Government regulation and cost of hedging
Effective Hedge rate
43. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
12%
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
strengthens
44. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
1.40 - Because I would be able to buy more euros
What is happening
Indirect quote
Current market price - spot - plus or minus the difference between the interest rates of the two countries
45. What is the purpose of hedging?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
3 business days and beyond
46. Forward points is equal to...
FX policy
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
spot price x interest differential
3 -210 billion (3 trillion)
47. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
downward slope
30%
adverse fluctuations
liquidity and cash
48. When is hedge rate published?
BRL
strengthens
directly or indirectly
6 weeks prior to Q/E
49. Treasury is responsible for managing companies funds and determining the firms'...
financial strength
1.60 - Because you can buy more dollars
financial strategy and financial policy
BS account balances
50. A forward happens in...
downward slope
interest rate differential
3 business days and beyond
financial strategy and financial policy
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