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. The offset of revaluation is recorded to...
F&O account 87503
BS account balances
translation
more

2. 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
APL rate
3 business days and beyond
F&O account 87503

3. What is Functional Currency?
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
foreign currency* rate
1.40 - Because I would be able to buy more euros
The currency of the primary economic environment in which the legal entity operates

4. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
liquidity and cash
currency options and forward
1.60 - Because you can buy more dollars
Forward contracts and Options

5. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
lost
valuable
Used to hedge against variability in expected future cash flows

6. Forward points multiply the exchange rate by the...
The currency of the primary economic environment in which the legal entity operates
lost
interest rate differential
Spot price

7. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
12%
6 weeks prior to Q/E
foreign exchange forward contract
Forward contracts and Options

8. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
direct
average rate
allow FX rate
Mitigates risks by using hedging techniques

9. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
fx forward
more
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Oracle

10. How does treasury accomplish its purpose?
Spot price
Effective Hedge rate
value
Mitigates risks by using hedging techniques

11. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
12%
1.40 - Because I would be able to buy more euros
1 unit
translation

12. What currencies use Direct method of quoting?
This means 1 Euro measured against US Dollars is worth $1.40
British Pound - Australian Dollar - New Zealand Dollar - Euro
Spot price
an estimate of aggregate rate

13. What are monetary accounts?
Pound strengthens
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 revalue every month to the balance sheet rate. (cash - A/are)
translation

14. Revaluation can be hedged - while ___________ cannot be hedged
functional currency
13%
financial risk
translation

15. 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...
SEK
an estimate of aggregate rate
APL rate
is getting bigger

16. An ___________ expresses the value of one currency relative to another
The calculation is the same - but instead of adding forward points you subtract
exchange rate
This means 1 Euro measured against US Dollars is worth $1.40
90%

17. What are non-monetary accounts?
6 weeks prior to Q/E
China - Malaysia - Colombia - Chile - Argentina
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
BS account balances

18. What rate is used on the balance sheet?
interest rate differential
12%
End of Period Rate (SCO-4 rate)
direct

19. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
1 share = 1/3 case
End of Period Rate (SCO-4 rate)
1.60 - Because you can buy more dollars
strengthens

20. A Spot happens in...
Pound strengthens
two business days
directly or indirectly
CNY

21. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
translation
financial strength
weakens

22. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
valuable
largest - It is open 24 hours a day - except weekends
financial strategy and financial policy
F&O account 87503

23. Treasury's role is to identify risk - control to prevent erosion of...
This means 1 Euro measured against US Dollars is worth $1.40
What is happening
financial strength
Forward Points

24. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
90%
less
Current market price - spot - plus or minus the difference between the interest rates of the two countries
financial strength

25. EUR-USD currency pair accounts for about ____ of all FX volume
more
interest rate differential
30%
Effective Hedge rate

26. Hedging instrument used in Fair Value Hedge program is...
3 business days and beyond
fx forward
End of Period Rate (SCO-4 rate)
The currency of the primary economic environment in which the legal entity operates

27. When is hedge rate published?
6 weeks prior to Q/E
functional currency
direct
Indirect quote

28. ____________ should be denominated in the currency they will either be paid or received in...
Currency in which the entity reports results externally
Used to hedge against variability in expected future cash flows
weakens
BS account balances

29. What is Fair Value hedge program used for?
Spot price
90%
5%
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

30. Hedging instrument used in cash flow program is...
MXN - EUR - CHF
currency options and forward
China - Malaysia - Colombia - Chile - Argentina
Forward Points

31. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
weakens
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
3 business days and beyond
adverse fluctuations

32. What are the four major FX accounting guidances?
1.40 - Because I would be able to buy more euros
Mitigates risks by using hedging techniques
12%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

33. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
6 weeks prior to Q/E
value
The calculation is the same - but instead of adding forward points you subtract
largest - It is open 24 hours a day - except weekends

34. If you execute an FX trade to _______________ using the current market price - the trade will typically settle in two business days
translation
exchange one currency for another
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Forward contracts and Options

35. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
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
weakens
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Mitigates risks by using hedging techniques

36. US Treasuries is the second highest trading volume accounting for...
5%
valuable
currency options and forward
300 billion

37. Where are revaluations done?
Spot price
foreign currency* rate
China - Malaysia - Colombia - Chile - Argentina
Oracle

38. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
3 -210 billion (3 trillion)
3 business days and beyond
P&L activity
translation

39. 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
Currency of the respective operating unit's country
allow FX rate
foreign currency* rate
British Pound - Australian Dollar - New Zealand Dollar - Euro

40. Direct quote- _____________=USD
less
financial strength
adverse fluctuations
foreign currency* rate

41. What rate is used to book daily transactions?
Treasury Daily Spot Rate
less
SFAS 52
1 Case = 2 pizzas

42. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
valuable
an estimate of aggregate rate
financial strength
Pound strengthens

43. What are some of the reason not hedge at all or partially hedge in a few countries?
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
Treasury Daily Spot Rate
Government regulation and cost of hedging

44. How is the price of the forward contract determined?
allow FX rate
financial strength
Current market price - spot - plus or minus the difference between the interest rates of the two countries
3 business days and beyond

45. GBP-USD account for ____ of trading FX volume
12%
5%
financial strength
What is happening

46. What is the ticker symbol for Brazilian Real?
BRL
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
two business days
P&L activity

47. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
interest rate differential
1 share = 1/3 case
APL rate
1.40 - Because I would be able to buy more euros

48. 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?
foreign exchange forward contract
Mitigates risks by using hedging techniques
5%
financial risk

49. 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?
spot price x interest differential
The difference between hedge rate and final effective hedge rate
FX policy
1.40 - Because I would be able to buy more euros

50. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
There are FOUR
SFAS 52
is getting bigger