Question 1

Split accounting treatment achieves hedge accounting treatment.

Accepted Answer

A) True 
 B)False  False

Question 2

In a fair value hedge, the concern is that a loss will be incurred (1) on an existing ______________________________ or ______________________________ or (2) on a _________________________

Accepted Answer

asset, liability, firm commitment

Question 3

_____ On 11/10/06, Buymax entered into a 60-day FX forward involving 100,000 British pounds to hedge a firm purchase commitment. Buymax took delivery on 1/9/07. Direct exchange rates on the respective dates are as follows:
  What is the FX gain or loss to be reported in earnings for 2006 on the FX forward?

Accepted Answer

A)  $ -0- 
B)  $3,000 gain. 
C)  $3,000 loss. 
D)  $5,000 gain. 
E)  $5,000 loss. 
A)  $ -0- 
B)  $3,000 gain. 
C)  $3,000 loss. 
D)  $5,000 gain. 
E)  $5,000 loss. E

Question 4

_____ Which of the following is not a forecasted transaction that could be hedged to prevent a loss on the transaction(s) (as opposed to the potential loss of forecasted transactions)?

Accepted Answer

A)  An expected decrease in domestic sales if the dollar strengthens. 
B)  A domestic company's budgeted import purchases. 
C)  A foreign subsidiary's budgeted net income. 
D)  Outstanding bids on potential contracts with foreign companies. 
E)  None of the above. 
A)  An expected decrease in domestic sales if the dollar strengthens. 
B)  A domestic company's budgeted import purchases. 
C)  A foreign subsidiary's budgeted net income. 
D)  Outstanding bids on potential contracts with foreign companies. 
E)  None of the above.

Question 5

Companies manage their foreign currency exposures by a technique called _____________________________________.

Accepted Answer

The answer of Companies manage their foreign currency exposures by...

Question 6

When a domestic exporter desires to hedge a foreign currency receivable using an FX forward, the exporter will contract to sell a specified number of foreign currency units.

Accepted Answer

A) True 
 B)False

Question 7

_____ Split accounting in the context of FX forwards pertains to

Accepted Answer

A)  Accounting for premiums and discounts separately from changes in the intrinsic value. 
B)  Accounting for premiums and discounts in the same manner as changes in the intrinsic value. 
C)  Recognizing premium and discount accruals currently in income regardless of the accounting for changes in the intrinsic value. 
D)  Deferring premium and discount accruals regardless of the accounting for changes in the intrinsic value. 
E)  None of the above. 
A)  Accounting for premiums and discounts separately from changes in the intrinsic value. 
B)  Accounting for premiums and discounts in the same manner as changes in the intrinsic value. 
C)  Recognizing premium and discount accruals currently in income regardless of the accounting for changes in the intrinsic value. 
D)  Deferring premium and discount accruals regardless of the accounting for changes in the intrinsic value. 
E)  None of the above.

Question 8

Hedge accounting is defined as accounting for the time value element in a manner consistent with accounting for the intrinsic value element of the hedging instrument.

Accepted Answer

A) True 
 B)False

Question 9

_____ Which of the following is not an existing asset or liability exposure that could be hedged?

Accepted Answer

A)  Receivables from exporting transactions. 
B)  Notes payable on foreign borrowing transactions. 
C)  The net investment in a foreign subsidiary. 
D)  The net monetary position of a foreign subsidiary. 
E)  None of the above. 
A)  Receivables from exporting transactions. 
B)  Notes payable on foreign borrowing transactions. 
C)  The net investment in a foreign subsidiary. 
D)  The net monetary position of a foreign subsidiary. 
E)  None of the above.

Question 10

In a derivative, credit risk and market risk are the "opposite sides of the same coin."

Accepted Answer

A) True 
 B)False

Question 11

Hedging a domestic company's budgeted import purchases to the extent of orders placed could be hedges of firm commitments.

Accepted Answer

A) True 
 B)False

Question 12

The three categories of foreign currency exposures that can be managed are (a)____________________________________, (b) ___________________________________, and (c) _______________________________.

Accepted Answer

The answer of The three categories of foreign currency exposures...

Question 13

Companies can hedge firm commitments but not forecasted transactions.

Accepted Answer

A) True 
 B)False

Question 14

All FX forwards are valued using the change in the ____________________________ exchange rate.

Accepted Answer

The answer of All FX forwards are valued using the...

Question 15

_____ Use the information in the preceding question, but assume that the option is a call option instead of a put option.

Accepted Answer

A)  $ -0- 
B)  $9,000 
C)  $15,000 
D)  $21,000 
E)  $30,000 
A)  $ -0- 
B)  $9,000 
C)  $15,000 
D)  $21,000 
E)  $30,000

Question 16

In an FX forward, the determination of whether a hedge has been effective is always an after-the-fact determination.

Accepted Answer

A) True 
 B)False

Question 17

In a forward-based derivative, either of the parties can have unlimited market risk.

Accepted Answer

A) True 
 B)False

Question 18

FX gains and losses on cash flow hedges are reported in earnings when they arise.

Accepted Answer

A) True 
 B)False

Question 19

_____ In an FX forward entered into for hedging an exposed liability, the importer (from a dollar perspective) has

Accepted Answer

The answer of _____ In an FX forward entered into...

Question 20

In practice, the obligations of each party in an FX forward are recorded on the books at the inception of the contract.

Accepted Answer

A) True 
 B)False

Exam 14: Using Derivatives to Manage Foreign Currency Exposures

Split accounting treatment achieves hedge accounting treatment.

In a fair value hedge, the concern is that a loss will be incurred (1) on an existing ______________________________ or ______________________________ or (2) on a _________________________

_____ Which of the following is not a forecasted transaction that could be hedged to prevent a loss on the transaction(s) (as opposed to the potential loss of forecasted transactions)?

Companies manage their foreign currency exposures by a technique called _____________________________________.

When a domestic exporter desires to hedge a foreign currency receivable using an FX forward, the exporter will contract to sell a specified number of foreign currency units.

_____ Split accounting in the context of FX forwards pertains to

Hedge accounting is defined as accounting for the time value element in a manner consistent with accounting for the intrinsic value element of the hedging instrument.

_____ Which of the following is not an existing asset or liability exposure that could be hedged?

In a derivative, credit risk and market risk are the "opposite sides of the same coin."

Hedging a domestic company's budgeted import purchases to the extent of orders placed could be hedges of firm commitments.

The three categories of foreign currency exposures that can be managed are (a)____________________________________, (b) ___________________________________, and (c) _______________________________.

Companies can hedge firm commitments but not forecasted transactions.

All FX forwards are valued using the change in the ____________________________ exchange rate.

_____ Use the information in the preceding question, but assume that the option is a call option instead of a put option.

In an FX forward, the determination of whether a hedge has been effective is always an after-the-fact determination.

In a forward-based derivative, either of the parties can have unlimited market risk.

FX gains and losses on cash flow hedges are reported in earnings when they arise.

_____ In an FX forward entered into for hedging an exposed liability, the importer (from a dollar perspective) has

In practice, the obligations of each party in an FX forward are recorded on the books at the inception of the contract.

Wholly Owned Subsidiaries: at Date of Creation

Wholly Owned Subsidiaries: Postcreation Periods

Partially Owned Created Subsidiaries & Variable Interest Entities

Introduction to Business Combinations

The Purchase Method: at Date of Acquisition-100 Ownership

The Purchase Method: Postacquisition Periods and Partial Ownerships

New Basis of Accounting

Introduction to Intercompany Transactions

Intercompany Inventory Transfers

Intercompany Fixed Asset Transfers & Bond Holdings

Changes in a Parents Ownership Interest, Statement of Cash Flows, & Earnings Per Share

Reporting Segment and Related Information

International Accounting Standards & Translating Foreign Currency Transactions

Translating Foreign Currency Statements: The Current Rate Method

Translating Foreign Currency Statements: The Temporal Method and the Functional Currency Concept

Interim Period Reporting

Securities and Exchange Commission Reporting

Bankruptcy Reorganizations and Liquidations

Partnerships: Formation and Operation

Partnerships: Changes in Ownership

Partnerships: Liquidations

Estates and Trusts

Governmental Accounting: Basic Principles and the General Fund

Governmental Accounting: The Special-Purpose Funds and Special General Ledger

Not-For-Profit Organizations: Introduction and Private Npos

Filters

In a fair value hedge, the concern is that a loss will be incurred (1) on an existing ____ or or (2) on a _

The three categories of foreign currency exposures that can be managed are (a)__________________, (b) _, and (c) _______________.