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. What would happen if the US interest rate was bigger than Mexico?
The calculation is the same - but instead of adding forward points you subtract
AUD
more
1USD

2. Revaluation can be hedged - while ___________ cannot be hedged
translation
P&L activity
AUD
Effective Hedge rate

3. Give an example of one way to hedge a price increase in gas prices...
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Currency of the respective operating unit's country

4. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
translation
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
more

5. An ___________ expresses the value of one currency relative to another
exchange rate
90%
5%
SEK

6. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
more
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
three digit ticker symbol ex: USD - United States Dollar
two business days

7. Hedging instrument used in cash flow program is...
Currency of the respective operating unit's country
financial strategy and financial policy
currency options and forward
adverse fluctuations

8. What are non-monetary accounts?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Mitigates risks by using hedging techniques
BRL
SEK

9. The difference in interest rate is referred to as...
Spot price
MXN - EUR - CHF
Pound strengthens
Forward Points

10. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 unit
more
1 Case = 2 pizzas
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

11. Treasury is responsible for banking requirements - funding for the business and managing...
financial risk
Treasury Daily Spot Rate
exchange rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

12. A forward happens in...
There are FOUR
Forward Points
3 business days and beyond
strengthens

13. What is cash flow used for?
Pound strengthens
Used to hedge against variability in expected future cash flows
5%
an estimate of aggregate rate

14. What does it mean to hedge?
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
Indirect quote
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
F&O account 87503

15. What rate is used on the P&L?
an estimate of aggregate rate
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
BRL
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

16. What are the exceptions to the ticker naming convention?
The currency of the primary economic environment in which the legal entity operates
Used to hedge against variability in expected future cash flows
90%
MXN - EUR - CHF

17. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
more
adverse fluctuations
an estimate of aggregate rate
allow FX rate

18. ____________ is used for translation of foreign currency P&L to Reporting currency?
1.60 - Because you can buy more dollars
currency options and forward
exchange one currency for another
APL rate

19. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
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
actual weighted average contract rate
lost

20. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
F&O account 87503
exchange one currency for another
weakens
30%

21. Give some examples of countries where its hard to hedge?
weakens
China - Malaysia - Colombia - Chile - Argentina
12%
adverse fluctuations

22. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
Oracle
What is happening
functional currency
adverse fluctuations

23. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
Current market price - spot - plus or minus the difference between the interest rates of the two countries
3 business days and beyond
direct
largest - It is open 24 hours a day - except weekends

24. What is the purpose of hedging?
two business days
average rate
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
6 weeks prior to Q/E

25. The ticker symbol for the Chinese Yuan
valuable
functional currency
There are FOUR
CNY

26. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
liquidity and cash
1 unit
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
BS account balances

27. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
1USD
Used to hedge against variability in expected future cash flows
actual weighted average contract rate
exchange rate

28. What dictates minimum and maximum hedge percentages?
FX policy
exchange one currency for another
1.60 - Because you can buy more dollars
direct

29. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Currency of the respective operating unit's country
What is happening
The currency of the primary economic environment in which the legal entity operates

30. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
APL rate
Forward contracts and Options
BRL

31. GBP-USD account for ____ of trading FX volume
lost
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
Spot price
12%

32. How is the hedge rate variance calculated?
The difference between hedge rate and final effective hedge rate
Mitigates risks by using hedging techniques
1 unit
downward slope

33. What is the trading in volume for FX?
3 -210 billion (3 trillion)
Pound strengthens
less
3 business days and beyond

34. The rules for adding or subtracting forward points depend on whether it is quoted...
3 business days and beyond
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
directly or indirectly
SFAS 52

35. All other currency trading with USD accounts for ____ of FX volume
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
21%
BRL
Forward Points

36. When is hedge rate published?
SEK
6 weeks prior to Q/E
300 billion
Currency in which the entity reports results externally

37. How is the price of the forward contract determined?
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
3 business days and beyond
Government regulation and cost of hedging

38. 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
downward slope
Pound strengthens
fx forward
F&O account 87503

39. How many currencies use Direct method of quoting?
strengthens
This means 1 Euro measured against US Dollars is worth $1.40
There are FOUR
Indirect quote

40. Forward points multiply the exchange rate by the...
End of Period Rate (SCO-4 rate)
AUD
Current market price - spot - plus or minus the difference between the interest rates of the two countries
interest rate differential

41. US Treasuries is the second highest trading volume accounting for...
300 billion
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
B/S rate
Indirect quote

42. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
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
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Government regulation and cost of hedging

43. What currencies use Direct method of quoting?
weakens
British Pound - Australian Dollar - New Zealand Dollar - Euro
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
foreign exchange forward contract

44. What are monetary accounts?
This means 1 Euro measured against US Dollars is worth $1.40
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
less

45. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
12%
Mitigates risks by using hedging techniques
foreign exchange forward contract
adverse fluctuations

46. Treasury's role is to identify risk - control to prevent erosion of...
allow FX rate
21%
financial strength
F&O account 87503

47. Treasury ensures that companies have ____________ to meet its obligations
3 business days and beyond
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
allow FX rate
liquidity and cash

48. What rate is used to book daily transactions?
Spot price
SEK
Treasury Daily Spot Rate
The difference between hedge rate and final effective hedge rate

49. The offset of revaluation is recorded to...
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
6 weeks prior to Q/E
F&O account 87503
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

50. What rate is used on the balance sheet?
Mitigates risks by using hedging techniques
End of Period Rate (SCO-4 rate)
The difference between hedge rate and final effective hedge rate
allow FX rate