Question 1

_____ In assessing hedge effectiveness, which of the following elements of a derivative must always be included in the assessment?

Accepted Answer

The answer of _____ In assessing hedge effectiveness, which of...

Question 2

Hedge accounting is not defined as accounting for the time value element separately from the intrinsic value element of the hedging instrument.

Accepted Answer

A) True 
 B)False

Question 3

_____ FX forwards are valued using

Accepted Answer

A)  The change in the forward rate. 
B)  The change in the spot rate. 
C)  The change in the forward rate or the spot rate, depending on whether the hedge is a fair value hedge or cash flow hedge. 
D)  The change in the intrinsic value. 
E)  None of the above. 
A)  The change in the forward rate. 
B)  The change in the spot rate. 
C)  The change in the forward rate or the spot rate, depending on whether the hedge is a fair value hedge or cash flow hedge. 
D)  The change in the intrinsic value. 
E)  None of the above.

Question 4

_____ Concerning FX forwards, which of the following statements is false?

Accepted Answer

A)  They result in a two-sided hedge if used for hedging. 
B)  Their use automatically results in the use of hedge accounting in hedging transactions. 
C)  They require the buyer of a foreign currency to take delivery of a foreign currency. 
D)  They can be used for hedging as well as speculating. 
E)  None of the above. 
A)  They result in a two-sided hedge if used for hedging. 
B)  Their use automatically results in the use of hedge accounting in hedging transactions. 
C)  They require the buyer of a foreign currency to take delivery of a foreign currency. 
D)  They can be used for hedging as well as speculating. 
E)  None of the above.

Question 5

Accounting for premiums and discounts separately from the intrinsic value is called ______________________________________.

Accepted Answer

The answer of Accounting for premiums and discounts separately from...

Question 6

On 12/1/06, Salox entered into a 50-day FX forward to hedge a noncancellable sales order it received that day that will require payment of 1,000,000 euros in 50 days by a French customer. 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 inventory sale.

Accepted Answer

The answer of On 12/1/06, Salox entered into a 50-day...

Question 7

The party having the obligation to honor the option contract is the _________________________________.

Accepted Answer

The answer of The party having the obligation to honor...

Question 8

Hedging a domestic company's budgeted export sales is a hedge of a forecasted transaction.

Accepted Answer

A) True 
 B)False

Question 9

_____ A domestic importer has an FX payable that is due in 90 days. The importer never speculates in foreign currencies. The importer wishes to assume no risk whatsoever that the exchange rate could change adversely and result in a loss. Accordingly, the importer 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 10

In a fair value hedge, the concern is always that a loss will be incurred (1) on an existing asset or existing liability or (2) a forecasted transaction.

Accepted Answer

A) True 
 B)False

Question 11

In a fair value hedge, the concern is always that a loss will be incurred on a forecasted transaction.

Accepted Answer

A) True 
 B)False

Question 12

_____ Which of the following terms is a correct term?

Accepted Answer

The answer of _____ Which of the following terms is...

Question 13

An expected future sale that is under contract would be considered a forecasted transaction.

Accepted Answer

A) True 
 B)False

Question 14

_____ Hedging an investment in equity securities classified as an "available for sale" security 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 15

In an FX forward, there is potential for either a gain or a loss.

Accepted Answer

A) True 
 B)False

Question 16

In a cash flow hedge, the concern is that an adverse cash flow result will occur on a _________________________.

Accepted Answer

The answer of In a cash flow hedge, the concern...

Question 17

The two most commonly used hedging instruments to hedge foreign currency exposures are (a) ____________________________ and (b) __________________________.

Accepted Answer

The answer of The two most commonly used hedging instruments...

Question 18

The financial instrument used to achieve the hedge is commonly called the _________________________________________.

Accepted Answer

The answer of The financial instrument used to achieve the...

Question 19

_____ A company that enters into an FX forward to buy 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

_____ A domestic exporter enters into an FX forward to hedge an FX receivable arising from an exporting transaction. Concerning these two transactions,

Accepted Answer

A)  The FX trader's obligation to the exporter is a receivable that must be initially recorded by the exporter at the fixed contractual amount. 
B)  Any premium or discount is to be recognized in earnings at the inception of the FX forward. 
C)  Any FX gains and losses can be offset and netted in earnings. 
D)  The use of an FX forward results in a perfect hedge. 
E)  None of the above. 
A)  The FX trader's obligation to the exporter is a receivable that must be initially recorded by the exporter at the fixed contractual amount. 
B)  Any premium or discount is to be recognized in earnings at the inception of the FX forward. 
C)  Any FX gains and losses can be offset and netted in earnings. 
D)  The use of an FX forward results in a perfect hedge. 
E)  None of the above.

Exam 14: Using Derivatives to Manage Foreign Currency Exposures

_____ In assessing hedge effectiveness, which of the following elements of a derivative must always be included in the assessment?

Hedge accounting is not defined as accounting for the time value element separately from the intrinsic value element of the hedging instrument.

_____ FX forwards are valued using

_____ Concerning FX forwards, which of the following statements is false?

Accounting for premiums and discounts separately from the intrinsic value is called ______________________________________.

The party having the obligation to honor the option contract is the _________________________________.

Hedging a domestic company's budgeted export sales is a hedge of a forecasted transaction.

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

In a fair value hedge, the concern is always that a loss will be incurred (1) on an existing asset or existing liability or (2) a forecasted transaction.

In a fair value hedge, the concern is always that a loss will be incurred on a forecasted transaction.

_____ Which of the following terms is a correct term?

An expected future sale that is under contract would be considered a forecasted transaction.

_____ Hedging an investment in equity securities classified as an "available for sale" security is a

In an FX forward, there is potential for either a gain or a loss.

In a cash flow hedge, the concern is that an adverse cash flow result will occur on a _________________________.

The two most commonly used hedging instruments to hedge foreign currency exposures are (a) ____________________________ and (b) __________________________.

The financial instrument used to achieve the hedge is commonly called the _________________________________________.

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

_____ A domestic exporter enters into an FX forward to hedge an FX receivable arising from an exporting transaction. Concerning these two transactions,

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

The two most commonly used hedging instruments to hedge foreign currency exposures are (a) __ and (b) .