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Foreign Exchange Essentials

Subjects : business-skills, industries

Instructions:

Answer 50 questions in 15 minutes.
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Match each statement with the correct term.
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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. Forward points is equal to...
allow FX rate
spot price x interest differential
lost
largest - It is open 24 hours a day - except weekends

2. GBP-USD account for ____ of trading FX volume
SFAS 52
APL rate
largest - It is open 24 hours a day - except weekends
12%

3. What does it mean to hedge?
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
What is happening
B/S rate

4. Treasury ensures that companies have ____________ to meet its obligations
liquidity and cash
two business days
MXN - EUR - CHF
Forward Points

5. The difference in interest rate is referred to as...
Forward Points
BS account balances
Effective Hedge rate
AUD

6. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1 share = 1/3 case
300 billion
allow FX rate

7. USD-JPY account for ____ of trading FX volume
1 Case = 2 pizzas
5%
13%
financial strategy and financial policy

8. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
is getting bigger
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
lost

9. What instruments do we use to hedge?
foreign currency* rate
F&O account 87503
12%
Forward contracts and Options

10. How is the hedge rate variance calculated?
1 share = 1/3 case
The difference between hedge rate and final effective hedge rate
spot price x interest differential
adverse fluctuations

11. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
liquidity and cash
12%
SFAS 52
interest rate differential

12. Forward points multiply the exchange rate by the...
interest rate differential
15 months in advance - layering on hedges through time
Forward Points
translation

13. The ticker symbol for the Chinese Yuan
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
CNY
Treasury Daily Spot 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

14. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
allow FX rate
21%
SEK
value

15. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
Oracle
Forward contracts and Options
P&L activity
directly or indirectly

16. __________ is used for translation of foreign currency B/S to reporting currency
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
Spot price
B/S rate

17. US Treasuries is the second highest trading volume accounting for...
fx forward
The calculation is the same - but instead of adding forward points you subtract
300 billion
financial risk

18. What is the purpose of hedging?
End of Period Rate (SCO-4 rate)
1.40 - Because I would be able to buy more euros
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
13%

19. What are monetary accounts?
foreign currency* rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
The currency of the primary economic environment in which the legal entity operates
90%

20. A Spot happens in...
AUD
two business days
China - Malaysia - Colombia - Chile - Argentina
The difference between hedge rate and final effective hedge rate

21. Treasury is responsible for managing companies funds and determining the firms'...
direct
financial strategy and financial policy
less
translation

22. What is currency Translation?

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23. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
directly or indirectly
Used to hedge against variability in expected future cash flows
1 share = 1/3 case
This means 1 Euro measured against US Dollars is worth $1.40

24. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
exchange one currency for another
90%
Forward contracts and Options
less

25. What are the four major FX accounting guidances?
Pound strengthens
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
is getting bigger

26. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
British Pound - Australian Dollar - New Zealand Dollar - Euro
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
13%
direct

27. Give an example of one way to hedge a price increase in gas prices...
Used to hedge against variability in expected future cash flows
Mitigates risks by using hedging techniques
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

28. What rate is used on the balance sheet?
Pound strengthens
90%
largest - It is open 24 hours a day - except weekends
End of Period Rate (SCO-4 rate)

29. Revaluation can be hedged - while ___________ cannot be hedged
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
three digit ticker symbol ex: USD - United States Dollar
5%
translation

30. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
functional currency
more
directly or indirectly

31. What is the trading in volume for FX?
Indirect quote
3 -210 billion (3 trillion)
largest - It is open 24 hours a day - except weekends
1.60 - Because you can buy more dollars

32. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Currency of the respective operating unit's country
Effective Hedge rate
1.60 - Because you can buy more dollars
6 weeks prior to Q/E

33. B/S rate is used for revaluation of foreign currency transaction to...
Mitigates risks by using hedging techniques
functional currency
BRL
Treasury Daily Spot Rate

34. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
strengthens
1 unit
Currency of the respective operating unit's country
APL rate

35. ____________ is used for translation of foreign currency P&L to Reporting currency?
Treasury Daily Spot Rate
APL rate
Forward Points
spot price x interest differential

36. What is the ticker symbol for Brazilian Real?
British Pound - Australian Dollar - New Zealand Dollar - Euro
Treasury Daily Spot Rate
BRL
Pound strengthens

37. What is Revaluation?

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38. What are the exceptions to the ticker naming convention?
FX policy
1 unit
MXN - EUR - CHF
5%

39. What are some of the reason not hedge at all or partially hedge in a few countries?
AUD
F&O account 87503
1 share = 1/3 case
Government regulation and cost of hedging

40. Direct quote- _____________=USD
Current market price - spot - plus or minus the difference between the interest rates of the two countries
Pound strengthens
foreign currency* rate
less

41. When is hedge rate published?
6 weeks prior to Q/E
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
1USD

42. One of the objectives of the hedge rate is to __________ that is used for pricing - planning - and accounting thus maximizing the efficiency of our hedge program
financial strength
allow FX rate
adverse fluctuations
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

43. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
two business days
3 business days and beyond
less
Current market price - spot - plus or minus the difference between the interest rates of the two countries

44. The current market price for any currency pair is referred to as ?
SEK
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
valuable
Spot price

45. The currency ticker for the Sweden Kroner is?
SEK
an estimate of aggregate rate
less
three digit ticker symbol ex: USD - United States Dollar

46. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
1 Case = 2 pizzas
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
MXN - EUR - CHF
SEK

47. The timing of when we execute hedges drastically impacts the ____________ we achieve
China - Malaysia - Colombia - Chile - Argentina
1.60 - Because you can buy more dollars
average rate
15 months in advance - layering on hedges through time

48. What is local currency?

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49. How far in advance do we hedge?
exchange one currency for another
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
an estimate of aggregate rate

50. Australian currency code is...
B/S rate
AUD
13%
weakens

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Foreign Exchange Essentials

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