Question 1

_____ Which of the following statements is false concerning speculating in a foreign currency using an FX forward?

Accepted Answer

A)  There is no intent to create a counterbalancing position. 
B)  FX gains and losses are measured by changes in the spot rate. 
C)  FX gains or losses are recognized currently. 
D)  Split accounting is not used. 
E)  None of the above. 
A)  There is no intent to create a counterbalancing position. 
B)  FX gains and losses are measured by changes in the spot rate. 
C)  FX gains or losses are recognized currently. 
D)  Split accounting is not used. 
E)  None of the above.

Question 2

Entering into an FX forward for purposes other than hedging is ________________ _____________________________________.

Accepted Answer

The answer of Entering into an FX forward for purposes...

Question 3

Hedging a domestic company's budgeted export sales is a strategic hedge.

Accepted Answer

A) True 
 B)False

Question 4

On 11/1/06, Purox entered into a 90-day FX forward to hedge a noncancellable inventory purchase order it issued that day that will require payment of 1,000,000 euros in 90 days to a French vendor. Direct exchange rates for the euro are as follows:
   Required:
a. Prepare all journal entries relating to the FX forward over the contract's life.
b. Prepare the journal entry to record the purchase of the inventory.

Accepted Answer

The answer of On 11/1/06, Purox entered into a 90-day...

Question 5

Market risk can consist of both _________________________________________ risk and ____________________________________ risk.

Accepted Answer

The answer of Market risk can consist of both _________________________________________...

Question 6

The three types of risk associated with derivatives are _________________________ risk, _____________________________ risk, and ______________________________risk.

Accepted Answer

The answer of The three types of risk associated with...

Question 7

Options have premiums but not discounts.

Accepted Answer

A) True 
 B)False

Question 8

Hedging a domestic company's budgeted export sales is a hedge of a firm commitment.

Accepted Answer

A) True 
 B)False

Question 9

All derivatives are valued in the balance sheet at their fair values.

Accepted Answer

A) True 
 B)False

Question 10

_____ The ineffective portion of an FX gain or loss on a cash flow hedge must always be reported currently in

Accepted Answer

The answer of _____ The ineffective portion of an FX...

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Derivative financial instruments are contracts that create obligations but not rights.

Accepted Answer

A) True 
 B)False

Question 13

Hedge accounting treatment achieves split accounting treatment.

Accepted Answer

A) True 
 B)False

Question 14

_____ A domestic exporter has an FX receivable that is due in 90 days. The exporter never speculates in foreign currencies. The exporter wishes to assume no risk whatsoever that the exchange rate could change adversely and result in a loss. Accordingly, the exporter 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)  None of the above. 
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)  None of the above.

Question 15

The difference between the spot rate and the forward rate is called a(n) ____________________________________ or a(n) __________________________________ and is viewed as being a(n) ______________________________________ element.

Accepted Answer

The answer of The difference between the spot rate and...

Question 16

Split accounting encompasses both (1) the manner of valuing a derivative and (2) the manner of reporting the change in a derivative's carrying value.

Accepted Answer

A) True 
 B)False

Question 17

An FX forward is an agreement to buy or sell a foreign currency (technically exchange different currencies) at a specified ______________________________ and at a specified ________________________________________.

Accepted Answer

The answer of An FX forward is an agreement to...

Question 18

_____ FX gains and losses on cash flow 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 19

_____ A company that enters into an FX forward to sell a foreign currency at less than the direct spot rate will have a:

Accepted Answer

The answer of _____ A company that enters into an...

Question 20

_____ Which of the following is not a unique characteristic of an option-based derivative financial instrument from the perspective of the option holder?

Accepted Answer

A)  Both on-balance-sheet risk and off-balance-sheet risk can exist simultaneously. 
B)  The market value can change quickly. 
C)  The market value can quickly change from a favorable position to an unfavorable position. 
D)  The market value can quickly change from an unfavorable position to a favorable position. 
E)  None of the above. 
A)  Both on-balance-sheet risk and off-balance-sheet risk can exist simultaneously. 
B)  The market value can change quickly. 
C)  The market value can quickly change from a favorable position to an unfavorable position. 
D)  The market value can quickly change from an unfavorable position to a favorable position. 
E)  None of the above.

Exam 14: Using Derivatives to Manage Foreign Currency Exposures

_____ Which of the following statements is false concerning speculating in a foreign currency using an FX forward?

Entering into an FX forward for purposes other than hedging is ________________ _____________________________________.

Hedging a domestic company's budgeted export sales is a strategic hedge.

Market risk can consist of both _________________________________________ risk and ____________________________________ risk.

The three types of risk associated with derivatives are _________________________ risk, _____________________________ risk, and ______________________________risk.

Options have premiums but not discounts.

Hedging a domestic company's budgeted export sales is a hedge of a firm commitment.

All derivatives are valued in the balance sheet at their fair values.

_____ The ineffective portion of an FX gain or loss on a cash flow hedge must always be reported currently in

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

Derivative financial instruments are contracts that create obligations but not rights.

Hedge accounting treatment achieves split accounting treatment.

_____ A domestic exporter has an FX receivable that is due in 90 days. The exporter never speculates in foreign currencies. The exporter wishes to assume no risk whatsoever that the exchange rate could change adversely and result in a loss. Accordingly, the exporter would

The difference between the spot rate and the forward rate is called a(n) ____________________________________ or a(n) __________________________________ and is viewed as being a(n) ______________________________________ element.

Split accounting encompasses both (1) the manner of valuing a derivative and (2) the manner of reporting the change in a derivative's carrying value.

An FX forward is an agreement to buy or sell a foreign currency (technically exchange different currencies) at a specified ______________________________ and at a specified ________________________________________.

_____ FX gains and losses on cash flow hedges are

_____ A company that enters into an FX forward to sell a foreign currency at less than the direct spot rate will have a:

_____ Which of the following is not a unique characteristic of an option-based derivative financial instrument from the perspective of the option holder?

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

Entering into an FX forward for purposes other than hedging is _____________________.

Market risk can consist of both _____ risk and risk.

The three types of risk associated with derivatives are ___________ risk, _ risk, and ________________risk.

The difference between the spot rate and the forward rate is called a(n) or a(n) and is viewed as being a(n) ____ element.

An FX forward is an agreement to buy or sell a foreign currency (technically exchange different currencies) at a specified and at a specified __________.