Exam 14: Using Derivatives to Manage Foreign Currency Exposures

_____ In an FX forward entered into for hedging an exposed receivable, the exporter (from a dollar perspective) has FX Forward Exchange Contracts-Premiums and Discounts

In a fair value hedge, any FX gain or loss on an FX forward used to hedge a firm commitment must be deferred until the transaction date.

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

Hedge accounting is defined as accounting for mark-to-market adjustments on the hedged item in the same manner as accounting for mark-to-market adjustments on the hedging instrument.

Hedging a noncancellable sales order is a hedge of a(n) _________________________ ____________________ anticipatory transaction.

Entering into an FX forward to buy a foreign currency at more than the spot rate will result in a(n) _________________________________________ that will eventually _________________________________ stockholders' equity.

Hedging a foreign currency receivable is protecting against the loss on a forcasted transaction.

In a derivative, liquidity risk can exist only if credit risk exists.

In an FX forward involving buying a foreign currency, the buyer is said to be "long" in that currency-not "short" in that currency.

Hedging exisiting inventory carried at FIFO cost is a fair value hedge.

_____ On 11/10/06, Buymax entered into a 60-day FX forward involving 100,000 British pounds to hedge a pound payable arising from an importing transaction. 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?

In assessing hedge effectiveness, the change in a derivative's carrying value attributable to the change in the derivative's time value element may or may not used.

FX gains and losses on fair value hedges are reported in earnings when they arise.

In an FX option, one party has the contractual right to buy or sell a specific quantity of currency at a(n) _______________________ during a(n) _______________________.

Under FAS 133, any FX gain or loss on an FX forward used to hedge an exposed asset or liability position must be recognized currently in the earnings.

In a cash flow hedge, amounts initially reported in Other Comprehensive Income are reclassified to ________________________________ when the transaction on the hedged item is reported in _______________________________.