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. A forward happens in...
6 weeks prior to Q/E
1USD
P&L activity
3 business days and beyond

2. What are non-monetary accounts?
Mitigates risks by using hedging techniques
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
B/S rate
3 business days and beyond

3. If 1 pizza = 15 USD then ____ = 1/15 pizza
AUD
1USD
interest rate differential
Oracle

4. Forward points multiply the exchange rate by the...
1 Case = 2 pizzas
lost
interest rate differential
1 unit

5. Give some examples of countries where its hard to hedge?
three digit ticker symbol ex: USD - United States Dollar
1.60 - Because you can buy more dollars
liquidity and cash
China - Malaysia - Colombia - Chile - Argentina

6. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
financial strategy and financial policy
SFAS 52
1.60 - Because you can buy more dollars
There are FOUR

7. What are the four major FX accounting guidances?
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
currency options and forward
B/S rate

8. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
5%
The currency of the primary economic environment in which the legal entity operates

9. What rate is used on the balance sheet?
Spot price
Forward contracts and Options
End of Period Rate (SCO-4 rate)
12%

10. How do you read EUR-USD = 1.40
There are FOUR
This means 1 Euro measured against US Dollars is worth $1.40
SEK
exchange rate

11. ____________ - foreign currency/rate = USD
largest - It is open 24 hours a day - except weekends
B/S rate
Indirect quote
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month

12. What is Fair Value hedge program used for?
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
1.40 - Because I would be able to buy more euros
Pound strengthens
an estimate of aggregate rate

13. The currency ticker for the Sweden Kroner is?
directly or indirectly
SEK
1 share = 1/3 case
1USD

14. In a GBP-USD relationship - when the line in a graph is upward slope it means the __________ overtime because the exchange rate is getting bigger
valuable
interest rate differential
End of Period Rate (SCO-4 rate)
Pound strengthens

15. In a stock-USD relationship - when arrow is going down means that stock is becoming ____ valuable against dollar
End of Period Rate (SCO-4 rate)
less
30%
3 business days and beyond

16. When looking at a currency chart - you need to know if the currency is quoted Directly or Indirectly to be able to describe...
FX policy
valuable
What is happening
This means 1 Euro measured against US Dollars is worth $1.40

17. A Spot happens in...
two business days
There are FOUR
is getting bigger
British Pound - Australian Dollar - New Zealand Dollar - Euro

18. The offset of revaluation is recorded to...
B/S rate
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
1USD
F&O account 87503

19. What is the ticker symbol for Brazilian Real?
directly or indirectly
largest - It is open 24 hours a day - except weekends
BRL
3 business days and beyond

20. The ______________ for a currency normally uses the first two digits to identify the country - and the last digit to identify the currency
financial risk
three digit ticker symbol ex: USD - United States Dollar
is getting bigger
F&O account 87503

21. What are the exceptions to the ticker naming convention?
fx forward
FX policy
MXN - EUR - CHF
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

22. What is Revaluation?

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23. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
APL rate
actual weighted average contract rate
adverse fluctuations
financial strategy and financial policy

24. Treasury's role is to identify risk - control to prevent erosion of...
weakens
financial strength
5%
1.40 - Because I would be able to buy more euros

25. Give an example of one way to hedge a price increase in gas prices...
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Indirect quote
BRL
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank

26. How far in advance do we hedge?
15 months in advance - layering on hedges through time
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
APL rate
3 business days and beyond

27. When is hedge rate published?
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
more
weakens

28. US Treasuries is the second highest trading volume accounting for...
Currency of the respective operating unit's country
300 billion
more
3 business days and beyond

29. How is the price of the forward contract determined?
British Pound - Australian Dollar - New Zealand Dollar - Euro
B/S rate
Current market price - spot - plus or minus the difference between the interest rates of the two countries
15 months in advance - layering on hedges through time

30. In a EUR-USD relationship - when arrow is going up means Euro is strengthening and Dollar...
What is happening
Oracle
weakens
interest rate differential

31. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
P&L activity
300 billion
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
5%

32. What is cash flow used for?
SEK
Used to hedge against variability in expected future cash flows
three digit ticker symbol ex: USD - United States Dollar
exchange rate

33. How many currencies use Direct method of quoting?
There are FOUR
exchange rate
an estimate of aggregate rate
lost

34. If you are an European planning a trip to America - which rate do you want? 1.40 or 1.60?
valuable
1.60 - Because you can buy more dollars
MXN - EUR - CHF
Treasury Daily Spot Rate

35. In a stock-USD relationship - when arrow is going up means that stock is becoming more ______ against dollar
an estimate of aggregate rate
Oracle
valuable
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

36. Whether the quote was indirect or direct - they are all stored as ______ in Oracle
financial strategy and financial policy
direct
liquidity and cash
foreign exchange forward contract

37. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
1 Case = 2 pizzas
BRL

38. Direct quote- _____________=USD
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
foreign currency* rate
direct

39. What does it mean to hedge?
exchange rate
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
value

40. Hedge rate is constant throughout quarter while _______________ changes throughout quarter
value
Effective Hedge rate
British Pound - Australian Dollar - New Zealand Dollar - Euro
Mitigates risks by using hedging techniques

41. In a GBP-USD relationship - if pound is strengthening it means that you can get _____ US Dollars for one pound
more
B/S rate
1 share = 1/3 case
The currency of the primary economic environment in which the legal entity operates

42. What would happen if the US interest rate was bigger than Mexico?
direct
directly or indirectly
The calculation is the same - but instead of adding forward points you subtract
MXN - EUR - CHF

43. Where are revaluations done?
1 Case = 2 pizzas
Oracle
1.40 - Because I would be able to buy more euros
Current market price - spot - plus or minus the difference between the interest rates of the two countries

44. Hedging instrument used in Fair Value Hedge program is...
average rate
fx forward
financial strategy and financial policy
300 billion

45. What rate is used on the P&L?
300 billion
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
Used to hedge against variability in expected future cash flows
currency options and forward

46. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
21%
Indirect quote
SEK
an estimate of aggregate rate

47. Forward points is equal to...
spot price x interest differential
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
Pound strengthens
currency options and forward

48. What is the trading in volume for FX?
BS account balances
3 -210 billion (3 trillion)
less
There are FOUR

49. The current market price for any currency pair is referred to as ?
1 Case = 2 pizzas
This means 1 Euro measured against US Dollars is worth $1.40
two business days
Spot price

50. Revaluation can be hedged - while ___________ cannot be hedged
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
translation
valuable
APL rate