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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. US Treasuries is the second highest trading volume accounting for...
The difference between hedge rate and final effective hedge rate
300 billion
exchange rate
Oracle

2. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
SFAS 52
spot price x interest differential
less
directly or indirectly

3. What is Functional Currency?
SEK
lost
Forward contracts and Options
The currency of the primary economic environment in which the legal entity operates

4. What dictates minimum and maximum hedge percentages?
liquidity and cash
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
FX policy
Forward Points

5. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
downward slope
BS account balances
actual weighted average contract rate
SEK

6. What would happen if the US interest rate was bigger than Mexico?
300 billion
B/S rate
The calculation is the same - but instead of adding forward points you subtract
less

7. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
3 business days and beyond
Forward contracts and Options
1.40 - Because I would be able to buy more euros
1 unit

8. How many currencies use Direct method of quoting?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
FX policy
exchange one currency for another
There are FOUR

9. Australian currency code is...
actual weighted average contract rate
AUD
value
6 weeks prior to Q/E

10. What is cash flow used for?
financial strategy and financial policy
Used to hedge against variability in expected future cash flows
B/S rate
The currency of the primary economic environment in which the legal entity operates

11. What are monetary accounts?
15 months in advance - layering on hedges through time
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Spot price
1USD

12. What are the exceptions to the ticker naming convention?
China - Malaysia - Colombia - Chile - Argentina
functional currency
fx forward
MXN - EUR - CHF

13. 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?
China - Malaysia - Colombia - Chile - Argentina
5%
SFAS 52
interest rate differential

14. 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
15 months in advance - layering on hedges through time
The calculation is the same - but instead of adding forward points you subtract
Effective Hedge rate

15. What is reporting currency?
Currency in which the entity reports results externally
1USD
allow FX rate
SEK

16. The offset of revaluation is recorded to...
This means 1 Euro measured against US Dollars is worth $1.40
The calculation is the same - but instead of adding forward points you subtract
F&O account 87503
exchange rate

17. ____________ is used for translation of foreign currency P&L to Reporting currency?
APL rate
strengthens
1 share = 1/3 case
value

18. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
liquidity and cash
weakens
allow FX rate
adverse fluctuations

19. The rules for adding or subtracting forward points depend on whether it is quoted...
SFAS 52
directly or indirectly
adverse fluctuations
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

20. ____________ - foreign currency/rate = USD
SEK
B/S rate
Indirect quote
1 Case = 2 pizzas

21. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
three digit ticker symbol ex: USD - United States Dollar
exchange one currency for another
Oracle
The calculation is the same - but instead of adding forward points you subtract

22. What is the ticker symbol for Brazilian Real?
300 billion
exchange one currency for another
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
BRL

23. What are the four major FX accounting guidances?
exchange 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
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
The difference between hedge rate and final effective hedge rate

24. __________ is used for translation of foreign currency B/S to reporting currency
SEK
What is happening
B/S rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities

25. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
13%
value
Mitigates risks by using hedging techniques
foreign exchange forward contract

26. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
1.60 - Because you can buy more dollars
300 billion
Current market price - spot - plus or minus the difference between the interest rates of the two countries
less

27. All other currency trading with USD accounts for ____ of FX volume
SEK
What is happening
translation
21%

28. How does treasury accomplish its purpose?
1USD
is getting bigger
Mitigates risks by using hedging techniques
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

29. What does it mean to hedge?
APL rate
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.
5%

30. How far in advance do we hedge?
actual weighted average contract rate
15 months in advance - layering on hedges through time
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)

31. Hedging instrument used in cash flow program is...
Oracle
currency options and forward
1 unit
allow FX rate

32. When is hedge rate published?
financial risk
an estimate of aggregate rate
currency options and forward
6 weeks prior to Q/E

33. What is Fair Value hedge program used for?
F&O account 87503
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
SFAS 52
1.40 - Because I would be able to buy more euros

34. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
Effective Hedge rate
translation
P&L activity
Forward Points

35. A forward happens in...
is getting bigger
translation
exchange one currency for another
3 business days and beyond

36. Revaluation can be hedged - while ___________ cannot be hedged
more
translation
F&O account 87503
British Pound - Australian Dollar - New Zealand Dollar - Euro

37. An ___________ expresses the value of one currency relative to another
average rate
financial strength
1 unit
exchange rate

38. What instruments do we use to hedge?
two business days
There are FOUR
Forward contracts and Options
FX policy

39. Treasury ensures that companies have ____________ to meet its obligations
an estimate of aggregate rate
21%
fx forward
liquidity and cash

40. What is Revaluation?

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41. EUR-USD currency pair accounts for about ____ of all FX volume
average rate
30%
BS account balances
Treasury Daily Spot Rate

42. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
90%
FX policy
1 Case = 2 pizzas
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.

43. Treasury is responsible for banking requirements - funding for the business and managing...
lost
B/S rate
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
financial risk

44. A Spot happens in...
1.40 - Because I would be able to buy more euros
two business days
average rate
downward slope

45. The ticker symbol for the Chinese Yuan
CNY
Oracle
Effective Hedge rate
Indirect quote

46. Give some examples of countries where its hard to hedge?
BS account balances
China - Malaysia - Colombia - Chile - Argentina
Currency in which the entity reports results externally
90%

47. A downward slope that represents stock-USD relationship means that stock price is losing ______ - so you are losing money
B/S rate
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
value
Pound strengthens

48. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
China - Malaysia - Colombia - Chile - Argentina
strengthens
valuable
Used to hedge against variability in expected future cash flows

49. How is the price of the forward contract determined?
Forward contracts and Options
6 weeks prior to Q/E
actual weighted average contract rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries

50. 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
Currency of the respective operating unit's country
The currency of the primary economic environment in which the legal entity operates
downward slope
financial risk