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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. Direct quote- _____________=USD
This means 1 Euro measured against US Dollars is worth $1.40
interest rate differential
foreign currency* rate
direct

2. What rate is used on the balance sheet?
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
End of Period Rate (SCO-4 rate)
currency options and forward
There are FOUR

3. What currencies use Direct method of quoting?
two business days
British Pound - Australian Dollar - New Zealand Dollar - Euro
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

4. 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
Indirect quote
There are FOUR
financial risk

5. What are some of the reason not hedge at all or partially hedge in a few countries?
Government regulation and cost of hedging
functional currency
The calculation is the same - but instead of adding forward points you subtract
actual weighted average contract rate

6. How is the price of the forward contract determined?
BS account balances
Used to hedge against variability in expected future cash flows
Current market price - spot - plus or minus the difference between the interest rates of the two countries
financial strength

7. Revaluation can be hedged - while ___________ cannot be hedged
Currency of the respective operating unit's country
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
translation

8. A Spot happens in...
two business days
12%
actual weighted average contract rate
allow FX rate

9. The currency ticker for the Sweden Kroner is?
F&O account 87503
SEK
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

10. Give some examples of countries where its hard to hedge?
China - Malaysia - Colombia - Chile - Argentina
AUD
21%
12%

11. What does it mean to hedge?
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging
weakens
Hedging protects the value of a future event by executing a trade that changes value in the opposite direction as the future event.
12%

12. 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
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)
B/S rate
adverse fluctuations

13. We do not speculate on Foreign Exchange - 10-K says it is to reduce the impact of...
21%
Pound strengthens
MXN - EUR - CHF
adverse fluctuations

14. What is Revaluation?

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15. Functional currency of an entity is determined by Treasury Accounting based on ______ requirements
SFAS 52
5%
300 billion
valuable

16. ____________ booked a hedge rate is trued up to the EHR each month during the quarter
average rate
B/S rate
P&L activity
currency options and forward

17. What are monetary accounts?
financial strength
Accounts that revalue every month to the balance sheet rate. (cash - A/are)
spot price x interest differential
exchange one currency for another

18. In a EUR-USD relationship - when arrow is going down - means Euro weakens and US Dollar...
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
Hedging allows us to provide stable earnings - makes planning simpler - and allows for longer lead time for marketing
strengthens

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

20. USD-JPY account for ____ of trading FX volume
SFAS 52
13%
direct
financial risk

21. Hedging instrument used in cash flow program is...
30%
directly or indirectly
SFAS 52
currency options and forward

22. Treasury is responsible for banking requirements - funding for the business and managing...
F&O account 87503
1 share = 1/3 case
financial risk
less

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
300 billion
downward slope
value
90%

24. GBP-USD account for ____ of trading FX volume
1 share = 1/3 case
Currency of the respective operating unit's country
12%
P&L activity

25. Hedging instrument used in Fair Value Hedge program is...
fx forward
AUD
interest rate differential
15 months in advance - layering on hedges through time

26. If 1 case = 30 USD and 1 pizza = 15 USD - then What is 1 case = ?
30%
1 Case = 2 pizzas
3 -210 billion (3 trillion)
directly or indirectly

27. The difference in interest rate is referred to as...
Forward Points
300 billion
an estimate of aggregate rate
21%

28. If 1 Share = 10 USD and 1 CASE = 30 USD - then 1 share =?
1 share = 1/3 case
fx forward
downward slope
financial strategy and financial policy

29. ____________ is used for translation of foreign currency P&L to Reporting currency?
Currency of the respective operating unit's country
15 months in advance - layering on hedges through time
APL rate
weakens

30. What is Functional Currency?
largest - It is open 24 hours a day - except weekends
1.40 - Because I would be able to buy more euros
The currency of the primary economic environment in which the legal entity operates
directly or indirectly

31. B/S rate is used for revaluation of foreign currency transaction to...
B/S rate
functional currency
5%
F&O account 87503

32. Australian currency code is...
exchange one currency for another
Forward contracts and Options
interest rate differential
AUD

33. A ____________________ is an exchange of two currencies at a fixed rate for any date other than spot delivery
Treasury Daily Spot Rate
FX policy
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
foreign exchange forward contract

34. Treasury's role is to identify risk - control to prevent erosion of...
financial strength
exchange rate
Used to hedge against the change in fair value (revaluation) of monetary assets & liabilities
Accounts that are carried at historical rates at which they were booked (fixed assets - inventory)

35. Hedge Rate is _______________ that will be achieved on a specific quarter's cash flow
1 unit
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
an estimate of aggregate rate
The difference between hedge rate and final effective hedge rate

36. What is the trading in volume for FX?
1USD
valuable
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
3 -210 billion (3 trillion)

37. With direct quoting _______ of the first item is quoted for a specific price in terms of the second item.
6 weeks prior to Q/E
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
1 unit
12%

38. The timing of when we execute hedges drastically impacts the ____________ we achieve
Pound strengthens
average rate
AUD
Oracle

39. A downward slope that represents AUD-USD relationship means that if you bought Australian dollars at point A - you have _____ money at point B
Spot price
3 -210 billion (3 trillion)
lost
FX policy

40. How far in advance do we hedge?
direct
15 months in advance - layering on hedges through time
downward slope
financial risk

41. __________ is used for translation of foreign currency B/S to reporting currency
Spot price
6 weeks prior to Q/E
B/S rate
lost

42. How is the hedge rate variance calculated?
Buy a stock in an Oil Company. Stock price increases when oil goes up and offset for your expenses in filling up tank
Spot price
The difference between hedge rate and final effective hedge rate
Forward Points

43. 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
3 business days and beyond
Pound strengthens
MXN - EUR - CHF
Used to hedge against variability in expected future cash flows

44. What would happen if the US interest rate was bigger than Mexico?
End of Period Rate (SCO-4 rate)
financial strength
BS account balances
The calculation is the same - but instead of adding forward points you subtract

45. The rules for adding or subtracting forward points depend on whether it is quoted...
value
Mitigates risks by using hedging techniques
adverse fluctuations
directly or indirectly

46. Effective Hedge Rate is ________________ of all outstanding FX contracts for the quarter being hedged
30%
Current market price - spot - plus or minus the difference between the interest rates of the two countries
FX policy
actual weighted average contract rate

47. What rate is used on the P&L?
financial risk
The average P&L rate (APL) which is the weighted average of Treasury Daily Spot rates for the month
90%
SFAS 52 - FX Translation - SFAS 133 - Accounting for Derivative Instruments & Hedging - SFAS 157 - Fair Value Measurement - SFAS 161 - Disclosures about Derivative Instruments & Hedging

48. 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...
average rate
financial strength
an estimate of aggregate rate
is getting bigger

49. Treasury is responsible for managing companies funds and determining the firms'...
translation
direct
an estimate of aggregate rate
financial strategy and financial policy

50. A forward happens in...
3 business days and beyond
15 months in advance - layering on hedges through time
AUD
APL rate

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Foreign Exchange Essentials

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