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. B/S rate is used for revaluation of foreign currency transaction to...
functional currency
Indirect quote
P&L activity
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

2. What dictates minimum and maximum hedge percentages?
liquidity and cash
FX policy
BS account balances
valuable

3. __________ is used for translation of foreign currency B/S to reporting currency
5%
Pound strengthens
B/S rate
an estimate of aggregate rate

4. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
90%
direct
financial strategy and financial policy

5. US Treasuries is the second highest trading volume accounting for...
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
5%
300 billion
allow FX rate

6. ____________ - foreign currency/rate = USD
SFAS 52
actual weighted average contract rate
Indirect quote
downward slope

7. A Spot happens in...
Oracle
two business days
The difference between hedge rate and final effective hedge rate
lost

8. What is cash flow used for?
currency options and forward
3 -210 billion (3 trillion)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
Used to hedge against variability in expected future cash flows

9. ____________ should be denominated in the currency they will either be paid or received in...
downward slope
90%
The difference between hedge rate and final effective hedge rate
BS account balances

10. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Effective Hedge rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
There are FOUR
foreign exchange forward contract

11. The rules for adding or subtracting forward points depend on whether it is quoted...
Pound strengthens
SEK
directly or indirectly
1USD

12. What is local currency?

13. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
Effective Hedge rate
translation
APL rate

14. What is the trading in volume for FX?
21%
1 share = 1/3 case
largest - It is open 24 hours a day - except weekends
3 -210 billion (3 trillion)

15. The current market price for any currency pair is referred to as ?
an estimate of aggregate rate
Spot price
1.40 - Because I would be able to buy more euros
Currency in which the entity reports results externally

16. All other currency trading with USD accounts for ____ of FX volume
APL rate
currency options and forward
liquidity and cash
21%

17. What is Revaluation?

18. What rate is used to book daily transactions?
Treasury Daily Spot Rate
value
300 billion
F&O account 87503

19. Hedging instrument used in Fair Value Hedge program is...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
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
exchange one currency for another
fx forward

20. 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...
liquidity and cash
APL rate
is getting bigger
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

21. Treasury is responsible for banking requirements - funding for the business and managing...
valuable
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
financial risk
functional currency

22. Treasury is responsible for managing companies funds and determining the firms'...
is getting bigger
CNY
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
financial strategy and financial policy

23. 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
direct
financial strategy and financial policy
30%

24. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
CNY
Oracle
Currency of the respective operating unit's country
valuable

25. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
1 unit
Government regulation and cost of hedging
This means 1 Euro measured against US Dollars is worth $1.40
allow FX rate

26. What are the exceptions to the ticker naming convention?
liquidity and cash
13%
MXN - EUR - CHF
fx forward

27. 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?
1.40 - Because I would be able to buy more euros
translation
300 billion
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing

28. What rate is used on the balance sheet?
End of Period Rate (SCO-4 rate)
There are FOUR
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
financial strategy and financial policy

29. GBP-USD account for ____ of trading FX volume
21%
12%
Forward contracts and Options
What is happening

30. What are monetary accounts?
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
1.60 - Because you can buy more dollars
FX policy
allow FX rate

31. What are the four major FX accounting guidances?
financial risk
Treasury Daily Spot Rate
SFAS 52
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

32. Revaluation can be hedged - while ___________ cannot be hedged
downward slope
SEK
90%
translation

33. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
valuable
Forward Points
P&L activity
value

34. An ___________ expresses the value of one currency relative to another
exchange rate
Currency in which the entity reports results externally
30%
The currency of the primary economic environment in which the legal entity operates

35. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
average rate
6 weeks prior to Q/E
There are FOUR

36. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
Currency of the respective operating unit's country
currency options and forward
an estimate of aggregate rate
actual weighted average contract rate

37. 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?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
1 Case = 2 pizzas
What is happening
5%

38. What does it mean to hedge?
15 months in advance - layering on hedges through time
The difference between hedge rate and final effective hedge rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Used to hedge against variability in expected future cash flows

39. Treasury ensures that companies have ____________ to meet its obligations
exchange rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
liquidity and cash
largest - It is open 24 hours a day - except weekends

40. Australian currency code is...
BRL
AUD
valuable
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

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
Effective Hedge rate
lost
financial strength
Used to hedge against variability in expected future cash flows

42. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
strengthens
Used to hedge against variability in expected future cash flows
an estimate of aggregate rate

43. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
actual weighted average contract rate
average rate
exchange one currency for another
What is happening

44. What is Fair Value hedge program used for?
30%
SFAS 52
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
value

45. When is hedge rate published?
exchange rate
5%
6 weeks prior to Q/E
financial strategy and financial policy

46. How is the price of the forward contract determined?
adverse fluctuations
Current market price - spot - plus or minus the difference between the interest rates of the two countries
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
90%

47. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
Forward contracts and Options
Pound strengthens
less
largest - It is open 24 hours a day - except weekends

48. What are non-monetary accounts?
13%
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)
Currency in which the entity reports results externally

49. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
Used to hedge against variability in expected future cash flows
actual weighted average contract rate
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
adverse fluctuations

50. What are some of the reason not hedge at all or partially hedge in a few countries?
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Government regulation and cost of hedging
Forward contracts and Options
BRL