Question 1

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

Accepted Answer

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

Question 2

FX forwards can be tailored to the exposure as to both (a) the quantity of currency and (b) the duration of the exposure.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  The current forward rate is presumed to be the current market value of the FX forward. 
B)  FX gains and losses are measured by changes in the forward rate. 
C)  Premiums and discounts are not recognized currently in earnings. 
D)  Split accounting is not an issue. 
E)  None of the above. 
A)  The current forward rate is presumed to be the current market value of the FX forward. 
B)  FX gains and losses are measured by changes in the forward rate. 
C)  Premiums and discounts are not recognized currently in earnings. 
D)  Split accounting is not an issue. 
E)  None of the above.

Question 4

FX gains and losses on cash flow hedges are reported in _______________________ when they arise and later reported in _____________________________________.

Accepted Answer

The answer of FX gains and losses on cash flow...

Question 5

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

Accepted Answer

A) True 
 B)False

Question 6

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

Accepted Answer

A) True 
 B)False

Question 7

Split accounting comes into play in determining how to assess __________________ __________________.

Accepted Answer

The answer of Split accounting comes into play in determining...

Question 8

_____ Which of the following is not one of the four types of hedging categories that exist?

Accepted Answer

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

Question 9

_____ In a hedge of a firm purchase commitment using an FX forward, how should FX gains and losses during the commitment period be reported?

Accepted Answer

A)  Recognize currently in earnings. 
B)  Defer until the transaction date. 
C)  Defer until the settlement date. 
D)  Recognize currently in earnings or defer (management's discretion). 
E)  None of the above. 
A)  Recognize currently in earnings. 
B)  Defer until the transaction date. 
C)  Defer until the settlement date. 
D)  Recognize currently in earnings or defer (management's discretion). 
E)  None of the above.

Question 10

Hedging an investment in a foreign subsidiary is a fair value hedge.

Accepted Answer

A) True 
 B)False

Question 11

_____ On 11/10/06, Specutex entered into a 60-day FX forward involving 100,000 British pounds to speculate. 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?

Accepted Answer

A)  $3,000 gain. 
B)  $3,000 loss. 
C)  $4,000 loss. 
D)  $4,000 gain. 
E)  $5,000 loss. 
A)  $3,000 gain. 
B)  $3,000 loss. 
C)  $4,000 loss. 
D)  $4,000 gain. 
E)  $5,000 loss.

Question 12

In an FX forward entered into for hedging purposes, recording adjustments for the change in the forward rate is accounting for only the intrinsic value element.

Accepted Answer

A) True 
 B)False

Question 13

_____ On 10/22/06, Selmax entered into a 90-day FX forward involving 100,000 euros to hedge a euro receivable arising from an exporting 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?

Accepted Answer

A)  $500 gain. 
B)  $1,000 gain. 
C)  $1,000 loss. 
D)  $2,000 gain. 
E)  $2,000 loss. 
A)  $500 gain. 
B)  $1,000 gain. 
C)  $1,000 loss. 
D)  $2,000 gain. 
E)  $2,000 loss.

Question 14

Just like the issuance of a sales order, FX forwards are executory in nature.

Accepted Answer

A) True 
 B)False

Question 15

In a derivative, only the party that can go into a payable position can have market risk.

Accepted Answer

A) True 
 B)False

Question 16

In a fair value hedge, amounts initially reported in Other Comprehensive Income are reclassified to earnings when the transaction on the hedged item is reported in earnings.

Accepted Answer

A) True 
 B)False

Question 17

FX gains and losses on fair value hedges are reported initially in Other Comprehensive Income when they arise.

Accepted Answer

A) True 
 B)False

Question 18

When a domestic importer desires to hedge a foreign currency payable using an FX forward, the importer will contract to sell a specified number of foreign currency units.

Accepted Answer

A) True 
 B)False

Question 19

In a derivative, the major concern is market risk.

Accepted Answer

A) True 
 B)False

Question 20

Reporting in earnings currently is mandatory for that portion of a derivative's FX gain that is determined to be ______________________________.

Accepted Answer

The answer of Reporting in earnings currently is mandatory for...

Exam 14: Using Derivatives to Manage Foreign Currency Exposures

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

FX forwards can be tailored to the exposure as to both (a) the quantity of currency and (b) the duration of the exposure.

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

FX gains and losses on cash flow hedges are reported in _______________________ when they arise and later reported in _____________________________________.

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

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

Split accounting comes into play in determining how to assess __________________ __________________.

_____ Which of the following is not one of the four types of hedging categories that exist?

_____ In a hedge of a firm purchase commitment using an FX forward, how should FX gains and losses during the commitment period be reported?

Hedging an investment in a foreign subsidiary is a fair value hedge.

_____ On 11/10/06, Specutex entered into a 60-day FX forward involving 100,000 British pounds to speculate. 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 an FX forward entered into for hedging purposes, recording adjustments for the change in the forward rate is accounting for only the intrinsic value element.

_____ On 10/22/06, Selmax entered into a 90-day FX forward involving 100,000 euros to hedge a euro receivable arising from an exporting 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?

Just like the issuance of a sales order, FX forwards are executory in nature.

In a derivative, only the party that can go into a payable position can have market risk.

In a fair value hedge, amounts initially reported in Other Comprehensive Income are reclassified to earnings when the transaction on the hedged item is reported in earnings.

FX gains and losses on fair value hedges are reported initially in Other Comprehensive Income when they arise.

When a domestic importer desires to hedge a foreign currency payable using an FX forward, the importer will contract to sell a specified number of foreign currency units.

In a derivative, the major concern is market risk.

Reporting in earnings currently is mandatory for that portion of a derivative's FX gain that is determined to be ______________________________.

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

FX gains and losses on cash flow hedges are reported in _ when they arise and later reported in _______________.

Split accounting comes into play in determining how to assess .