Team Forward! Foreign Exchange Test
- 1.
Balance sheet hedging opportunities may arise from which of the following:
- A.
FX translation gains / losses in earnings
- B.
Non-functional currency intercompany or third-party payables or receivables
- C.
Non-functional currency cash balances (parent or subsidiary)
- D.
All of the above
- E.
None of the above
Correct Answer
D. All of the aboveExplanation
Hedging opportunities arise when a company has non-functional currency exposures. These exposures are typically non functional monetary assets and liabilities (A/R, A/P, intercompany sales, cash, inter-company loans, etc) that when revalued for changes in the exchange rates creates translation gains/losses.Rate this question:
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- 2.
A client who is long CAD versus USD would benefit from which of the following?
- A.
Appreciation of the CAD against the USD
- B.
Depreciation of the CAD against the USD
- C.
Depreciation of the USD against the EUR
- D.
Appreciation of the USD against the EUR
- E.
None of the above
Correct Answer
A. Appreciation of the CAD against the USDExplanation
A client who is long CAD versus USD would benefit from the appreciation of the CAD against the USD because it would increase the value of their CAD holdings relative to the USD. This means that if they were to convert their CAD back into USD, they would receive more USD in return.Rate this question:
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- 3.
Which of the following is NOT a currency risk factor in an international acquisition?
- A.
Risk that the deal does not close after hedging the purchase price
- B.
A rise in the USD equivalent purchase price due to currency volatility
- C.
The creation of non-functional currency exposures
- D.
The potential currency risk created from a cross border inter-company loan
- E.
All of the above are currency risk factors
Correct Answer
E. All of the above are currency risk factorsExplanation
Prior to closing, a rise/fall in FX rates can lead to more/less USD required to complete the acquisition than originally factored. We have tools to protect against this including option structures that limit exposure should the deal ultimately fail. In addition, inter-company debt used to finance the acquisition will need to be hedged via a derivative or an accounting solution. When a company acquires a new foreign entity typically this will change the profile of the FX risk the company faces.Rate this question:
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- 4.
Which of the below statements are false?
- A.
CBForex is the FX Online trading system used for FCA and FX transactions
- B.
CBForex allows users to access their USD accounts held with RBS Citizens, N.A.
- C.
CBForex allows clients to choose one or two users to process and approve trades
- D.
Clients can set authorization limits for each user in CBForex
Correct Answer
B. CBForex allows users to access their USD accounts held with RBS Citizens, N.A.Explanation
CBForex is RBS Citizens' web-based FX system. Customers can execute FX contracts (spot and forward) and manage their foreign currency accounts held at Citizens. Customers would use Money Manager GPS (MMGPS) to manage and initiate transactions from their US Dollar accounts.Rate this question:
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- 5.
A purchased FX Option (call / put) gives the client:
- A.
The right but not the obligation to buy / sell a specified amount of currency for another (on a specific date at a fixed exchange rate)
- B.
Inflexibility with regard to the client’s ability to choose the details of the trade
- C.
The obligation to buy / sell a specified amount of currency for another (on a specific date at a fixed exchange rate)
- D.
Partial flexibility depending on where the fixed exchange rate is set
- E.
None of the above
Correct Answer
A. The right but not the obligation to buy / sell a specified amount of currency for another (on a specific date at a fixed exchange rate)Explanation
A purchased FX Option (call / put) gives the client the right but not the obligation to buy/sell a specified amount of currency for another at a fixed exchange rate on a specific date. This means that the client has the choice to exercise the option or not, depending on market conditions. The option provides flexibility as the client can choose to execute the trade if it is advantageous, but they are not obligated to do so. This distinguishes it from other options that require the client to buy/sell currency at a fixed exchange rate.Rate this question:
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- 6.
The price of an option (in the form of a paid premium or embedded in the trade to effectively produce a "zero-cost" option) is based upon a number of market factors, including:
- A.
Spot and forward rates
- B.
Interest rates
- C.
Expiration date and strike price
- D.
Volatility of the exchange rate
- E.
All of the above
Correct Answer
E. All of the aboveExplanation
In any structured product, various factors determine price including credit premium to be imbedded into price. We will guide clients to the best solution based on these variables.Rate this question:
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- 7.
A prospect that banks with a smaller regional bank or community bank likely:
- A.
Has no opportunity in foreign exchange, thus why they are with a smaller bank
- B.
Has not had a review of their potential FX needs or where FX transactions could help their business
- C.
Is better off doing their FX transactions at the kiosk of an international airport
- D.
Is not sophisticated enough to consider FX transactions
- E.
None of the above
Correct Answer
B. Has not had a review of their potential FX needs or where FX transactions could help their businessExplanation
When your clients work with the FX desk at RBS Citizens, you are delivering a full global FX product suite, locally. You are delivering direct access to a Foreign Exchange expert, who can save your clients and prospects on the cost of their payables, deliver more profitability, and protect the value of their global receivables.
Credit unions and community banks will offer the FX product as a "white-label" of another bank's product, if they can even offer the international product set. They also will not provide the consultative sales approach that RBS Citizens is able to offer.
RBS Citizens offers the best of both world: a top 10 FX bank, with a dedicated product resource who is an expert in FX solutions.Rate this question:
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- 8.
The owner of a specialty printing company that is purchasing a new Heidelberg Press from a German distributor should consider:
- A.
Using ACH versus wire to send US dollars to save money on the wire fees
- B.
Asking for a quote in German Deutschmarks despite Germany's adoption of the Euro in 2002
- C.
Using an interest rate derivative to lock in the price of the press
- D.
Asking the Heidelberg rep what the cost of the press would be in Euros in addition to USD
- E.
Delaying investment in the press to avoid interest expense and currency conversion fees
Correct Answer
D. Asking the Heidelberg rep what the cost of the press would be in Euros in addition to USDExplanation
By accessing invoices in both EUR and USD, the RBS Citizens FX team is able to analyze the costs of the Heidelberg Press and show the specialty printing company guaranteed cost savings by settling the transaction in EUR vs. USD. The company obtains the same machine, locks in the USD price of the press, and reduces its costs: a win / win for both our client and RBS Citizens. The only loser in the transaction is Heidelberg Press bank (i.e. Deutsche) who loses out on capturing the FX spread revenue.Rate this question:
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- 9.
XYZ Manufacturing is likely to move forward with a number of multi-million equipment purchases in Europe and China over the next three years. What should the CFO consider in planning for these purchases?
- A.
Currency fluctuations could significantly change the final price paid for the equipment
- B.
The CFO should consider a credit default swap to help pay for the equipment over time
- C.
This could be an ideal use of forward currency contracts
- D.
All of the above
- E.
A and C only
Correct Answer
E. A and C onlyExplanation
Any time a client or prospect chooses to either purchase or sell goods or services outside of the US, an FX risk is created. The only question becomes who will manage the FX risk, and who will pay the FX conversion costs. By working with the RBS Citizens FX team, clients and prospects can clearly see the value that is delivered by our FX team. There is always a risk in global trade. By using US dollars as a settlement currency, a client is not avoiding a risk, but paying too much or possibly risking a sale if there is an adverse currency movement.Rate this question:
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- 10.
FX opportunity exists with companies that:
- A.
Have large amounts of cash in overseas subsidiaries
- B.
Purchase inventory from foreign suppliers
- C.
Are considering doing acquisitions outside the US
- D.
All of the above
- E.
A and C only
Correct Answer
D. All of the aboveExplanation
All of the above are clear examples of why FX is part of our clients’ daily activity. The US economy is increasingly global, with the current economic recovery being mainly spurred by increased exports. All of these are real examples of why our customers who are involved in these activities should be introduced to your dedicated FX sales specialist.Rate this question:
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- 11.
Clients who do business only in US Dollars with all of their suppliers and all of their customers incur no foreign currency risk no matter where their business partners are.
- A.
True
- B.
False
Correct Answer
B. FalseExplanation
US companies have historically thought that by managing their global payables and receivables in US dollars, they do not need to be concerned about FX. They consider FX to be risky and speculative. US companies are increasingly becoming aware of the opportunities to save money by managing FX themselves, and protecting the value of their global sales from the risk that their buyers’ currency devalues vs. the US dollar and creates the risk of a lost sale. RMs should always introduce their FX specialist to these clients and prospects, even if they hear, "I do everything in US dollars, so I don’t need to worry about Foreign Exchange."Rate this question:
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- 12.
What's the number one FX-related question to ask when meeting every client or prospect?
- A.
Do you have an office in Russia?
- B.
Are you receiving routine payments in Indian Rupee?
- C.
Who do you buy from? Where do you sell to?
- D.
Would you like to learn how to hedge Brazilian Reals?
Correct Answer
C. Who do you buy from? Where do you sell to?Explanation
RBS Citizens has a best-in-class global platform with local FX solutions experts. When out on a discovery call, RMs should always ask the client or prospect, "Who do you buy from? Where do you sell to?”
Any response that includes a customer or source outside of the US (don’t forget Canada) should result in a referral to the FX team so that RBS Citizens’ FX value proposition can be explained on an anchor call. If possible, the referral should include which countries are used, and any volume information if possible. This is sufficient detail for the FX team to qualify the referral.Rate this question:
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- 13.
Clients who both pay in and receive a specific foreign currency and who wish to save on FX fees have which of the following options available to them?
- A.
A Foreign Currency Account in the US
- B.
A local currency account in the country of the currency
- C.
Doing business in US Dollars only
- D.
All of the above
- E.
A and B only
Correct Answer
E. A and B onlyExplanation
Customers and prospects who both receive and pay in the same currency are candidates for a local currency account. RBS Citizens offers a foreign currency account in 25 currencies in the US (FDIC insured). RBS plc offers additional global accounts. Your FX expert, in conjunction with your Cash Management Sales Specialist, can determine which product is suitable based upon the client's requirements.Rate this question:
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- 14.
Until recently, RBS Citizens RMs have been asked to steer clear of a certain country's currency. However, we have recently made changes to allow RBS Citizens to be very competitive in:
- A.
Mexican Peso (MXN)
- B.
Euro (EUR)
- C.
Chinese Renminbi (RMB)
- D.
South African Rand (ZAR)
Correct Answer
C. Chinese Renminbi (RMB)Explanation
RBS Citizens was one of the first US regional banks to offer FX payment solutions in China. This unique capability allows RBS Citizens to convert US dollars to Chinese Renminbi (RMB) locally, and wire to our client’s beneficiary, or to receive RMB, and convert to US dollars for US exporters.
RBS Citizens is thus able to deliver the same level of transparent pricing in this most important economy to our customers and prospects.
The Chinese Government’s Central Bank has approved this type of account to very few US banks (Bank of America still does not offer this product). We have a competitive advantage with this account vs. our peer banks, as well as a service model with our partners at RBS Shanghai that are best in class.Rate this question:
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- 15.
Foreign currency contracts are utilized when a company needs to:
- A.
Lower the exchange rate
- B.
Exchange cash flows
- C.
Lock in the exchange rate
- D.
Hold the spot rate constant
- E.
None of the above
Correct Answer
C. Lock in the exchange rateExplanation
A forward currency contract offers a fixed FX conversion rate on specified amounts of currency with specified dates in the future. The forward price is derived by using the current spot exchange rate, foreign interest rate differentials, tenor and basis.
Forward FX prices therefore are not intended to be an expectation of where the currency will be in the future.Rate this question:
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- 16.
A proper T&C should include FX Credit Equivalent Exposure (CEE) approval, which is meant to measure:
- A.
FX Market Risk / Replacement Risk
- B.
Settlement Risk
- C.
Tenor Risk
- D.
All of the above
Correct Answer
A. FX Market Risk / Replacement RiskExplanation
Although a proper T&C for FX hedging should include a Daily Settlement Limit (DSL), maximum duration for an FX contract (Tenor), the credit equivalent exposure is intended to approve the inherent market / replacement risk that is created when RBS Citizens enters into a foreign exchange forward contract.Rate this question:
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- 17.
Cash Letters and Direct Collection are ways of:
- A.
Making and receiving cross-border payments
- B.
Depositing checks in a foreign currency
- C.
Managing a client's payables
- D.
AccessXCHANGE
- E.
None of the above
Correct Answer
B. Depositing checks in a foreign currencyExplanation
International Check processing pertains to checks presented for deposit in foreign currency or US Dollars that are drawn on a bank outside the United States. These checks may be deposited to either a customer's Citizens Financial Group U.S. Dollar account or a Citizens Financial Group foreign currency account.
There are two methods for collecting funds on foreign checks.
• Using a daily Cash Letter, International Operations delivers checks via courier to the Bank of Nova Scotia. Through a clearing arrangement with BNS, checks in funds other than Canadian dollars are sold to BNS at a prevailing FX exchange rate, and credited to our USD account held with them. The exchange rate on items in foreign currency is applied when the checks are presented.
• Direct Collection is used for those checks drawn on emerging market countries, or when a customer or Relationship Manager require that the check be processed with no risk of return. The time for processing checks in this manner can be lengthy, and associated fees are usually high. The exchange rate is applied (if applicable) and the customer’s account is credited only after the bank has been notified that funds have been paid into our account.
Provisional credit approvals for foreign checks (either in FX or US dollars) should allow for the maximum single item that a client will deposit. It is important to remember that this limit is for both checks drawn in foreign currency or US dollars. If the maker of the check is a make outside of the US, regardless of currency, a provisional credit limit is required to expedite the deposit to the client. It is also provisional, in that there is still a risk of return.Rate this question:
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- 18.
Which of the following are opportunities for RBS Citizens FX Solutions to be introduced?
- A.
International Wire
- B.
International Letter of Credit
- C.
Foreign currency Lease (asset purchase or sale)
- D.
Corporate with foreign earnings
- E.
All of the above
Correct Answer
E. All of the aboveExplanation
FX can be the settlement currency for a cross-border wire, a letter of credit or documentary collection, or a lease. RBS Citizens is always looking to be the FX bank, and seeks to educate clients and prospects to the potential cost savings or inherent risk that should be locally managed by clients when dealing internationally. A corporate with foreign earnings is also a clear prospect opportunity.Rate this question:
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- 19.
Which of the following is true about Transaction & Savings Foreign Currency Accounts?
- A.
Transaction accounts offer interest
- B.
Savings accounts have unlimited deposits and withdrawals
- C.
Savings accounts offer interest
- D.
Transaction accounts have a limit of 10 withdrawals per month
Correct Answer
C. Savings accounts offer interestExplanation
Transaction FCAs offer no interest, but unlimited withdrawals and deposits, while Savings FCAs limit six withdrawals per month, but offer interest.Rate this question:
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- 20.
Which Founding Father is currently featured in the Citizens Bank / Charter One commercials?
- A.
Abraham Lincoln
- B.
Ward Cleaver
- C.
George William Frederick (George III)
- D.
Alexander Hamilton
- E.
Cliff Huxtable
Correct Answer
D. Alexander HamiltonExplanation
Alexander Hamilton is a spokesperson for Citizens Bank and Charter One in the current radio and TV ads since the new branding was rolled out. Hamilton was a Founding Father of the US and the first Secretary of the Treasury.
Abraham Lincoln was the 16th President of the US, born well after the country was founded. Ward Cleaver was "The Beaver's" father in the TV show Leave it to Beaver. George III was the king of Great Britain during the Revolutionary War. Cliff Huxtable was the father played by Bill Cosby on The Cosby Show.
Good Banking is Good Citizenship!Rate this question:
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- 21.
Which of the following is NOT a means of initiating an FX transaction with RBS Citizens?
- A.
By phone
- B.
Online with CBForex
- C.
Through accessMOBILE
- D.
Via the wire room
- E.
Online with MMGPS
Correct Answer
C. Through accessMOBILEExplanation
FX transactions can be initiated on the phone, online with CBForex or MMGPS, or via the wire room. Currently, accessMOBILE does not have this capability.Rate this question:
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- 22.
Futures and exchange-traded options offered through exchanges have less counterparty risk due to the fact that:
- A.
There is risk that one party to the transaction may not live up to the contractual obligations
- B.
The counterparty is the exchange itself, rather than a single party
- C.
The exchange is ultimately guaranteed by the Federal Reserve
- D.
One large financial institution could hold an abnormally high percentage of one side of the contract
- E.
None of the above
Correct Answer
B. The counterparty is the exchange itself, rather than a single partyExplanation
By using an exchange to trade options & futures, the client has less counterparty risk because the entity is not a single party, and therefore the default risk is lower.Rate this question:
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- 23.
How many available currencies does RBS Citizens FX team have capabilities in?
- A.
130
- B.
95
- C.
175
- D.
115
- E.
None of the above
Correct Answer
A. 130Explanation
RBS Citizens is able to offer capabilities to clients in 130 available currencies, including the Chinese Renminbi.Rate this question:
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- 24.
If a US importer hedges foreign product purchases with a buy-and-hold (set-and-forget) hedging program, which of the following is true about the hedge?
- A.
Smooths out volatility
- B.
Outperforms when the currency being purchased is appreciating
- C.
Adjusts for forecast error
- D.
Utilizes dollar cost averaging
- E.
None of the above
Correct Answer
B. Outperforms when the currency being purchased is appreciatingExplanation
The buy-and-hold strategy outperforms the market when the currency being purchased is appreciating because as the currency is becoming more expensive to the client, the client is able to benefit from being locked-in at a lower rate due to the purchased (and held) hedge.Rate this question:
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Current Version
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Mar 14, 2023Quiz Edited by
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Mar 09, 2012Quiz Created by
CommercialBankin
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