Question 1

_____ FX gains and losses on fair value hedges are

Accepted Answer

A)  Always reported currently in earnings. 
B)  Initially reported in earnings and later reclassified to other comprehensive income. 
C)  Initially reported in other comprehensive income and later reclassified to earnings. 
D)  Initially deferred as assets and liabilities. 
E)  None of the above. 
A)  Always reported currently in earnings. 
B)  Initially reported in earnings and later reclassified to other comprehensive income. 
C)  Initially reported in other comprehensive income and later reclassified to earnings. 
D)  Initially deferred as assets and liabilities. 
E)  None of the above.

Question 2

Hedging budgeted export sales is a hedge of a(n) _______________________________ transaction.

Accepted Answer

The answer of Hedging budgeted export sales is a hedge...

Question 3

Under FAS 133, FX gains and losses resulting from speculating using an FX forward cannot be deferred.

Accepted Answer

A) True 
 B)False

Question 4

_____ In a forward-based derivative, the party in the favorable position cannot have which of the following risks?

Accepted Answer

A)  Credit risk. 
B)  Liquidity risk. 
C)  Market risk. 
D)  Off-balance-sheet risk. 
E)  None of the above. 
A)  Credit risk. 
B)  Liquidity risk. 
C)  Market risk. 
D)  Off-balance-sheet risk. 
E)  None of the above.

Question 5

_____ 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 6

In an FX option written by an FX trader, the FX trader always has a contractual obligation to deliver a foreign currency to the option holder if the option holder exercises the option.

Accepted Answer

A) True 
 B)False

Question 7

An option worth exercising is said to be ______________________________________.

Accepted Answer

The answer of An option worth exercising is said to...

Question 8

In an option-based derivative, only one of the parties can have unlimited market risk.

Accepted Answer

A) True 
 B)False

Question 9

The fair value of the obligations of each party in a forward exchange contract are usually reported at __________________________________________ in the balance sheet because of the legal right of __________________________________________.

Accepted Answer

The answer of The fair value of the obligations of...

Question 10

_____ Which of the following statements is false concerning FX options?

Accepted Answer

A)  They result in one-sided hedges. 
B)  Split accounting is not an applicable issue. 
C)  The intrinsic value can never be below zero. 
D)  A put option is an option to sell-not buy. 
E)  None of the above. 
A)  They result in one-sided hedges. 
B)  Split accounting is not an applicable issue. 
C)  The intrinsic value can never be below zero. 
D)  A put option is an option to sell-not buy. 
E)  None of the above.

Question 11

Options that are "out of the money" have no intrinsic value.

Accepted Answer

A) True 
 B)False

Question 12

In an FX forward, the process of accruing the premium or discount to earnings over the life of the forward contract is called split accounting.

Accepted Answer

A) True 
 B)False

Question 13

_____ A domestic importer has an FX payable that is due in 90 days. The importer wishes to report (a) a gain if the exchange rate changes favorably and (b) no loss if the exchange rate changes unfavorably. If the importer's policy is to use only FX forwards (and not options), the importer would

Accepted Answer

A)  Enter into an FX forward to purchase a specified number of foreign currency units at a specified future date. 
B)  Enter into an FX forward to sell a specified number of foreign currency units at a specified future date. 
C)  Enter into an FX forward only if there is a belief that the direct exchange rate will increase. 
D)  Enter into an FX forward only if there is a belief that the direct exchange rate will decrease. 
E)  Be unable to always accomplish these objectives using FX forwards. 
A)  Enter into an FX forward to purchase a specified number of foreign currency units at a specified future date. 
B)  Enter into an FX forward to sell a specified number of foreign currency units at a specified future date. 
C)  Enter into an FX forward only if there is a belief that the direct exchange rate will increase. 
D)  Enter into an FX forward only if there is a belief that the direct exchange rate will decrease. 
E)  Be unable to always accomplish these objectives using FX forwards.

Question 14

In an FX forward that hedges a foreign currency receivable, the accrual of a discount would result in a debit being made to earnings.

Accepted Answer

A) True 
 B)False

Question 15

The price paid to acquire an option is called the _______________________________.

Accepted Answer

The answer of The price paid to acquire an option...

Question 16

_____ For an FX forward to qualify for a hedge of a firm purchase commitment, which of the following conditions, among others, must be satisfied?

Accepted Answer

A)  The expiration date of the FX forward must coincide with the transaction date on the purchase commitment. 
B)  The quantity of currency in the FX forward must be the same as the quantity of currency on the purchase commitment. 
C)  The purchase commitment must be firm. 
D)  The hedge must be a perfect hedge. 
E)  None of the above. 
A)  The expiration date of the FX forward must coincide with the transaction date on the purchase commitment. 
B)  The quantity of currency in the FX forward must be the same as the quantity of currency on the purchase commitment. 
C)  The purchase commitment must be firm. 
D)  The hedge must be a perfect hedge. 
E)  None of the above.

Question 17

In FX forwards, each party to the contract must deliver a currency to the other party at the expiration date.

Accepted Answer

A) True 
 B)False

Question 18

In a forward-based derivative, both parties can have market risk simultaneously.

Accepted Answer

A) True 
 B)False

Question 19

In an option-based derivative, only one of the parties can have market risk.

Accepted Answer

A) True 
 B)False

Question 20

Hedging a forecasted transaction is a cash value hedge.

Accepted Answer

A) True 
 B)False

Exam 14: Using Derivatives to Manage Foreign Currency Exposures

_____ FX gains and losses on fair value hedges are

Hedging budgeted export sales is a hedge of a(n) _______________________________ transaction.

Under FAS 133, FX gains and losses resulting from speculating using an FX forward cannot be deferred.

_____ In a forward-based derivative, the party in the favorable position cannot have which of the following risks?

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

In an FX option written by an FX trader, the FX trader always has a contractual obligation to deliver a foreign currency to the option holder if the option holder exercises the option.

An option worth exercising is said to be ______________________________________.

In an option-based derivative, only one of the parties can have unlimited market risk.

The fair value of the obligations of each party in a forward exchange contract are usually reported at __________________________________________ in the balance sheet because of the legal right of __________________________________________.

_____ Which of the following statements is false concerning FX options?

Options that are "out of the money" have no intrinsic value.

In an FX forward, the process of accruing the premium or discount to earnings over the life of the forward contract is called split accounting.

_____ A domestic importer has an FX payable that is due in 90 days. The importer wishes to report (a) a gain if the exchange rate changes favorably and (b) no loss if the exchange rate changes unfavorably. If the importer's policy is to use only FX forwards (and not options), the importer would

In an FX forward that hedges a foreign currency receivable, the accrual of a discount would result in a debit being made to earnings.

The price paid to acquire an option is called the _______________________________.

_____ For an FX forward to qualify for a hedge of a firm purchase commitment, which of the following conditions, among others, must be satisfied?

In FX forwards, each party to the contract must deliver a currency to the other party at the expiration date.

In a forward-based derivative, both parties can have market risk simultaneously.

In an option-based derivative, only one of the parties can have market risk.

Hedging a forecasted transaction is a cash value hedge.

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

The fair value of the obligations of each party in a forward exchange contract are usually reported at in the balance sheet because of the legal right of .