Certified Treasury Professional Exam Foreign Exchange and International Treasury 1 — Questions and Answers
Question 1: Which foreign exchange market structure accounts for the largest daily trading volume globally?
- Spot market (Correct answer)
- Forward market
- Futures market
- Options market
Correct answer: Spot market
The FX spot market is the largest segment by daily volume, where currencies are exchanged for immediate delivery at the current rate.
Question 2: A U.S. company expects to receive €2,000,000 in 90 days and wants to lock in the exchange rate. Which instrument is most appropriate?
- Currency swap
- Forward contract (Correct answer)
- Interest rate cap
- Cross-currency basis swap
Correct answer: Forward contract
A forward contract locks in a specific exchange rate for a future date, eliminating FX rate uncertainty on the anticipated euro receipt.
Question 3: What does a negative basis in the cross-currency basis swap market typically indicate?
- Excess USD demand relative to other currencies (Correct answer)
- Excess supply of USD in offshore markets
- Rising domestic interest rates
- Declining forward premiums
Correct answer: Excess USD demand relative to other currencies
A negative cross-currency basis reflects strong demand for USD funding offshore, causing borrowers to pay a premium above SOFR to obtain dollars.
Question 4: Which method of FX exposure is associated with the translation of foreign subsidiary financial statements into the parent company's reporting currency?
- Transaction exposure
- Economic exposure
- Translation exposure (Correct answer)
- Operational exposure
Correct answer: Translation exposure
Translation exposure (also called accounting exposure) arises when consolidating foreign subsidiary financials into the parent's reporting currency.
Question 5: Under the CTP exam framework, which hedging ratio approach adjusts the hedge position dynamically as market conditions change?
- Static hedging
- Delta hedging (Correct answer)
- Proxy hedging
- Natural hedging
Correct answer: Delta hedging
Delta hedging involves continuously rebalancing the hedge ratio based on changes in the option's delta as underlying prices move.
Question 6: A U.S. treasury team uses leading and lagging of intercompany payments to manage FX risk. Lagging a payable denominated in a foreign currency that is expected to depreciate means:
- Paying early to benefit from current rates
- Delaying payment to pay less in USD terms later (Correct answer)
- Converting excess cash immediately
- Entering a forward to buy the foreign currency
Correct answer: Delaying payment to pay less in USD terms later
Lagging a foreign-currency payable delays the outflow, allowing the company to pay fewer USD when the foreign currency depreciates.
Certified Treasury Professional Exam Foreign Exchange and International Treasury 1
Which foreign exchange market structure accounts for the largest daily trading volume globally?