Question 1

_____ In an option-based derivative, the option writer 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 2

Hedging a firm commitment is a fair value hedge.

Accepted Answer

A) True 
 B)False

Question 3

Any portion of a derivative's FX gain that is determined to be ineffective must be reported currently in Other Comprehensive Income.

Accepted Answer

A) True 
 B)False

Question 4

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

Accepted Answer

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

Question 5

On 11/1/06, Impox entered into a 90-day FX forward to hedge 1,000,000 pounds owed to a British vendor. Direct exchange rates for the pound 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 payment to the British customer.

Accepted Answer

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

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Hedging the potential loss of domestic sales because of an expected weakening of a foreign currency would be a strategic hedge.

Accepted Answer

A) True 
 B)False

Question 8

_____ Hedging a forecasted transaction is a

Accepted Answer

A)  Cash flow hedge. 
B)  Fair value hedge. 
C)  Net investment hedge. 
D)  Undesignated hedge. 
E)  None of the above. 
A)  Cash flow hedge. 
B)  Fair value hedge. 
C)  Net investment hedge. 
D)  Undesignated hedge. 
E)  None of the above.

Question 9

To "write" an option, an entity must be an FX trader. Thus, a domestic importer or exporter could not write an option-such an entity can be only an option holder.

Accepted Answer

A) True 
 B)False

Question 10

_____ Hedge accounting is a special accounting treatment that achieves

Accepted Answer

A)  Counterbalancing. 
B)  Concurrent recognition of mark-to-market adjustments. 
C)  Counterbalancing and concurrent recognition of mark-to-market adjustments. 
D)  Counterbalancing and either concurrent recognition or concurrent deferral of mark-to-market adjustments. 
E)  None of the above. 
A)  Counterbalancing. 
B)  Concurrent recognition of mark-to-market adjustments. 
C)  Counterbalancing and concurrent recognition of mark-to-market adjustments. 
D)  Counterbalancing and either concurrent recognition or concurrent deferral of mark-to-market adjustments. 
E)  None of the above.

Question 11

_____ On 8/3/06, Buyox entered into a noncancellable purchase agreement with a British vendor involving a custom-made machine. Buyox took delivery of the machine on 12/1/06 (120 days later). The purchase price was 100,000 pounds, which Buyox remitted to the vendor on l/30/07 (60 days after delivery). Direct exchange rates on the respective dates are as follows:
  Also on 8/3/06, Buyox entered into a 180-day FX forward to buy 100,000 pounds. What is the FX gain or loss recognized in earnings for 2006 on the FX commitment?

Accepted Answer

A)  $ -0- 
B)  $4,000 gain. 
C)  $4,000 loss. 
D)  $7,000 gain. 
E)  $7,000 loss. 
A)  $ -0- 
B)  $4,000 gain. 
C)  $4,000 loss. 
D)  $7,000 gain. 
E)  $7,000 loss.

Question 12

_____ In a derivative, "on-balance-sheet risk" is a component of which of the following risks?

Accepted Answer

A)  Credit risk. 
B)  Liquidity risk. 
C)  Market risk. 
D)  Strategic risk. 
E)  None of the above. 
A)  Credit risk. 
B)  Liquidity risk. 
C)  Market risk. 
D)  Strategic risk. 
E)  None of the above.

Question 13

Hedging a forecasted transaction is a fair value hedge.

Accepted Answer

A) True 
 B)False

Question 14

Options that are "in the money" have intrinsic value but not time value.

Accepted Answer

A) True 
 B)False

Question 15

_____ Hedging an existing FX receivable arising from an exporting transaction is a

Accepted Answer

A)  Cash flow hedge. 
B)  Fair value hedge. 
C)  Net investment hedge. 
D)  Undesignated hedge. 
E)  None of the above. 
A)  Cash flow hedge. 
B)  Fair value hedge. 
C)  Net investment hedge. 
D)  Undesignated hedge. 
E)  None of the above.

Question 16

Gains and loses on derivatives cannot be deferred and reported as ______________ ______________and _______________________________.

Accepted Answer

The answer of Gains and loses on derivatives cannot be...

Question 17

Entering into an FX forward prior to the delivery date would be a hedge of either a(n) _________________________________ or a(n) _________________________________.

Accepted Answer

The answer of Entering into an FX forward prior to...

Question 18

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

Accepted Answer

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

Question 19

_____ On 10/10/06, Selcor entered into a noncancellable sales agreement with a foreign customer to sell a custom-made machine. Selcor delivered the machine on 12/9/06 (60 days later). The sales price was 100,000 LCUs, which Selcor received on 1/8/07 (30 days after delivery). Direct exchange rates on the respective dates are as follows:
  Also on 10/10/06, Selcor entered into a 90-day FX forward to sell 100,000 LCUs. What is the FX gain or loss recognized in earnings for 2006 on the FX commitment?

Accepted Answer

A)  $ -0- 
B)  $2,000 
C)  $3,000 
D)  $4,000 
E)  $5,000 
A)  $ -0- 
B)  $2,000 
C)  $3,000 
D)  $4,000 
E)  $5,000

Question 20

Hedging the potential loss of budgeted export sales because of an expected weakening of a foreign currency would be a hedge of a forecasted transaction.

Accepted Answer

A) True 
 B)False

Exam 14: Using Derivatives to Manage Foreign Currency Exposures

_____ In an option-based derivative, the option writer cannot have which of the following risks?

Hedging a firm commitment is a fair value hedge.

Any portion of a derivative's FX gain that is determined to be ineffective must be reported currently in Other Comprehensive Income.

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

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

Hedging the potential loss of domestic sales because of an expected weakening of a foreign currency would be a strategic hedge.

_____ Hedging a forecasted transaction is a

To "write" an option, an entity must be an FX trader. Thus, a domestic importer or exporter could not write an option-such an entity can be only an option holder.

_____ Hedge accounting is a special accounting treatment that achieves

_____ In a derivative, "on-balance-sheet risk" is a component of which of the following risks?

Hedging a forecasted transaction is a fair value hedge.

Options that are "in the money" have intrinsic value but not time value.

_____ Hedging an existing FX receivable arising from an exporting transaction is a

Gains and loses on derivatives cannot be deferred and reported as ______________ ______________and _______________________________.

Entering into an FX forward prior to the delivery date would be a hedge of either a(n) _________________________________ or a(n) _________________________________.

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

Hedging the potential loss of budgeted export sales because of an expected weakening of a foreign currency would be a hedge of a forecasted transaction.

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

Gains and loses on derivatives cannot be deferred and reported as and ___________________.

Entering into an FX forward prior to the delivery date would be a hedge of either a(n) _ or a(n) _.