Exam 14: Using Derivatives to Manage Foreign Currency Exposures

The party having the contractual right is the _________________________________.

_____ In a derivative, liquidity risk is the opposite side of the coin of which of the following risks?

In an option-based derivative, one of the parties can have market risk, credit risk, and liquidity risk simultaneously.

In an FX forward in which a foreign currency is being sold at less than the spot rate, a discount exists.

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

In speculating using an FX forward, a doubling of the exposed position occurs instead of a counterbalancing of the exposed position.

In a derivative, both parties can have market risk.

Derivative financial instruments are contracts that create both rights and obligations.

Hedge accounting is required whenever FX forwards are used.

Split accounting in the context of options refers to accounting for the ____________________________________ separately from the ________________________________.

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

FX options result in a(n) ________________________________ hedge because only the downside risk on the hedged item is ______________________________________.

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

FX forwards and FX options can be used as hedged items.

An option that is "out of the money" has no time value.

In a derivative, the party that either is in a payable position or can go into a payable position has __________________________________________ market risk.

In an FX forward to sell a foreign currency, the seller must make delivery of the foreign currency to the FX dealer at the expiration date.

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

______________________________ is a special accounting treatment that achieves both (a) counterbalancing and (b) either concurrent recognition or concurrent deferral of mark-to-market adjustments.

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