Question 1

What has occurred when one company arranges to buy a foreign currency sometime in the future, at an exchange rate quoted today?

Accepted Answer

A) The company has purchased a foreign currency option. 
B) The company has entered a forward contract. 
C) The currency has been devalued. 
D) None of the above 
A) The company has purchased a foreign currency option. 
B) The company has entered a forward contract. 
C) The currency has been devalued. 
D) None of the above B

Question 2

Under U.S.GAAP, what method is required to account for foreign currency transactions?

Accepted Answer

A) A one-transaction perspective must be used. 
B) The two-transaction perspective must be used. 
C) A sale is not recorded until payment is received and converted to U.S.dollars. 
D) A sale is not recorded until payment is received in the foreign currency. 
A) A one-transaction perspective must be used. 
B) The two-transaction perspective must be used. 
C) A sale is not recorded until payment is received and converted to U.S.dollars. 
D) A sale is not recorded until payment is received in the foreign currency. B

Question 3

What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract?

Accepted Answer

A) Hedge of an unrecognized foreign currency firm commitment 
B) Hedge of a recognized foreign-currency-denominated asset 
C) Hedge of a forecast foreign-currency-denominated transaction 
D) Hedge of net investment in foreign operations 
A) Hedge of an unrecognized foreign currency firm commitment 
B) Hedge of a recognized foreign-currency-denominated asset 
C) Hedge of a forecast foreign-currency-denominated transaction 
D) Hedge of net investment in foreign operations B

Question 4

On November 1, 20x1 Zamfir Company, a U.S. corporation, purchased minerals from a Russian company for 2,000,000 rubles, payable in 3 months. The relevant exchange rates between the U.S. and Russian currencies are given:$\begin{array}{lll} 
& \text { Spot rate } & \text { Forward rate(at February 1,20 x 2) } \
\text { November 1,20 x 1   }  1 & \$ 0.348 & \$ 0.348\
\text {December  31,20 x1 }& \$ 0.359 & \$ 0.352 \
\text { February 1.  20 x 2   } & \$ 0.344 &
\end{array}$ 
-If Zamfir does not attempt to hedge this transaction, what is the gain or loss that should be shown on the company's December 31, 20x1 financial statements?

Accepted Answer

A) $22,000 loss 
B) $21,450 loss 
C) $8,000 gain 
D) $7,800 gain 
A) $22,000 loss 
B) $21,450 loss 
C) $8,000 gain 
D) $7,800 gain

Question 5

A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:

Accepted Answer

A) hedge. 
B) foreign currency firm commitment. 
C) forward contract. 
D) put option. 
A) hedge. 
B) foreign currency firm commitment. 
C) forward contract. 
D) put option.

Question 6

What has occurred when one company purchases the right to buy a foreign currency sometime in the future at an exchange rate quoted today?

Accepted Answer

A) The company has acquired a call option. 
B) The company has entered a forward contract. 
C) The currency has appreciated relative to the dollar. 
D) The company has acquired a put option. 
A) The company has acquired a call option. 
B) The company has entered a forward contract. 
C) The currency has appreciated relative to the dollar. 
D) The company has acquired a put option.

Question 7

Under U.S.GAAP, what is the proper treatment of unrealized foreign exchange losses?

Accepted Answer

A) They should be deferred on the Balance Sheet until the cash is paid. 
B) They should not be recognized until cash is received to complete the transaction. 
C) They should be recorded on the Income Statement in the period the exchange rate changes. 
D) They should be deferred on the Balance Sheet until an offsetting foreign exchange gain is realized. 
A) They should be deferred on the Balance Sheet until the cash is paid. 
B) They should not be recognized until cash is received to complete the transaction. 
C) They should be recorded on the Income Statement in the period the exchange rate changes. 
D) They should be deferred on the Balance Sheet until an offsetting foreign exchange gain is realized.

Question 8

What is foreign exchange risk exposure?

Accepted Answer

A) The possibility of a loss because of changes in the value of a foreign currency 
B) Losses caused by paying for purchased goods in a foreign currency 
C) Losses caused by receiving payment in a foreign currency for goods sold 
D) All of the above 
A) The possibility of a loss because of changes in the value of a foreign currency 
B) Losses caused by paying for purchased goods in a foreign currency 
C) Losses caused by receiving payment in a foreign currency for goods sold 
D) All of the above

Question 9

What is "hedge accounting?"

Accepted Answer

A) Any record keeping related to purchase, sale, or valuation of derivatives. 
B) Recording options and other derivatives on the Balance Sheet. 
C) Matching gains or losses from hedging with losses or gains from the risk being hedged. 
D) Using multiple accounting methods to offset the effect of foreign currency exchange. 
A) Any record keeping related to purchase, sale, or valuation of derivatives. 
B) Recording options and other derivatives on the Balance Sheet. 
C) Matching gains or losses from hedging with losses or gains from the risk being hedged. 
D) Using multiple accounting methods to offset the effect of foreign currency exchange.

Question 10

Under U.S.GAAP, what is the proper treatment of unrealized foreign exchange gains?

Accepted Answer

A) They should be deferred on the Balance Sheet until cash is received. 
B) The principle of conservatism requires that they should never be recognized. 
C) They should not be recorded until cash is received and the exchange transaction is completed. 
D) They should be recognized in income on the date the exchange rate changes. 
A) They should be deferred on the Balance Sheet until cash is received. 
B) The principle of conservatism requires that they should never be recognized. 
C) They should not be recorded until cash is received and the exchange transaction is completed. 
D) They should be recognized in income on the date the exchange rate changes.

Question 11

What kind of exposure exists for recognized foreign currency assets and liabilities?

Accepted Answer

A) Fair value exposure 
B) Cash flow exposure 
C) Both fair value exposure and cash flow exposure 
D) Neither fair value exposure nor cash flow exposure 
A) Fair value exposure 
B) Cash flow exposure 
C) Both fair value exposure and cash flow exposure 
D) Neither fair value exposure nor cash flow exposure

Question 12

When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:

Accepted Answer

A) be pegged to another currency. 
B) be less valuable. 
C) have independent float. 
D) devalue. 
A) be pegged to another currency. 
B) be less valuable. 
C) have independent float. 
D) devalue.

Question 13

What is the requirement for reporting derivatives under international accounting standards and U.S.GAAP?

Accepted Answer

A) They may be shown on the balance sheet or they may be treated as off-balance sheet investments. 
B) They must be shown on the balance sheet at fair value. 
C) They must be shown on the balance sheet at historical cost. 
D) They may be shown on the balance sheet at historical cost or at net realizable value. 
A) They may be shown on the balance sheet or they may be treated as off-balance sheet investments. 
B) They must be shown on the balance sheet at fair value. 
C) They must be shown on the balance sheet at historical cost. 
D) They may be shown on the balance sheet at historical cost or at net realizable value.

Question 14

Which of the following is done when accounting for a cash flow hedge, but is not done when accounting for a fair value hedge?

Accepted Answer

A) The hedged asset or liability is adjusted to fair value. 
B) Foreign exchange gains or losses on the hedged asset or liability are recorded in net income. 
C) Increases or decreases in a derivative's fair value are recorded in accumulated other comprehensive income. 
D) Gains or losses resulting from adjusting the fair value of a derivative are recorded in net income. 
A) The hedged asset or liability is adjusted to fair value. 
B) Foreign exchange gains or losses on the hedged asset or liability are recorded in net income. 
C) Increases or decreases in a derivative's fair value are recorded in accumulated other comprehensive income. 
D) Gains or losses resulting from adjusting the fair value of a derivative are recorded in net income.

Question 15

What is a "strike price?"

Accepted Answer

A) The exchange rate that is used to buy a foreign currency today 
B) The price that will be paid for goods in a forward contract 
C) The exchange rate that will be used if a foreign currency option is executed 
D) The difference between the wholesale rate and the retail rate for foreign currency exchange 
A) The exchange rate that is used to buy a foreign currency today 
B) The price that will be paid for goods in a forward contract 
C) The exchange rate that will be used if a foreign currency option is executed 
D) The difference between the wholesale rate and the retail rate for foreign currency exchange

Question 16

The number of Japanese yen (¥) required today to buy one U.S.dollar ($) today is called:

Accepted Answer

A) the spot rate. 
B) the exact rate. 
C) the forward rate. 
D) the retail rate. 
A) the spot rate. 
B) the exact rate. 
C) the forward rate. 
D) the retail rate.

Question 17

Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized?

Accepted Answer

A) Foreign exchange gains almost never occur, so there is no reason to have an accounting standard for it. 
B) It violates the principle of conservatism. 
C) It is not objective. 
D) There is no reliable method for measuring unrealized foreign exchange gains. 
A) Foreign exchange gains almost never occur, so there is no reason to have an accounting standard for it. 
B) It violates the principle of conservatism. 
C) It is not objective. 
D) There is no reliable method for measuring unrealized foreign exchange gains.

Question 18

For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted on OANDA.com was $1.563 per €1.What should Pat plan to pay for €1,000?

Accepted Answer

A) exactly $1,563 
B) more than $1,563 
C) about $640 
D) less than $640 
A) exactly $1,563 
B) more than $1,563 
C) about $640 
D) less than $640

Question 19

Under U.S.GAAP, what method of amortizing discounts or premiums on forward contracts must be used?

Accepted Answer

A) Weighted average method or accelerated method 
B) Sum of digit method only 
C) Effective interest rate method or straight line method 
D) Straight line method only 
A) Weighted average method or accelerated method 
B) Sum of digit method only 
C) Effective interest rate method or straight line method 
D) Straight line method only

Question 20

Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?

Accepted Answer

A) This was a period when the world economy was very stable. 
B) There was very little growth in the world economy between 1945 and 1973. 
C) Countries linked their currency to the U.S.dollar, which was backed by gold reserves. 
D) Most currencies were pegged to the British pound, which could be converted to sterling silver. 
A) This was a period when the world economy was very stable. 
B) There was very little growth in the world economy between 1945 and 1973. 
C) Countries linked their currency to the U.S.dollar, which was backed by gold reserves. 
D) Most currencies were pegged to the British pound, which could be converted to sterling silver.

What has occurred when one company arranges to buy a foreign currency sometime in the future, at an exchange rate quoted today?

Under U.S.GAAP, what method is required to account for foreign currency transactions?

What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract?

A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:

What has occurred when one company purchases the right to buy a foreign currency sometime in the future at an exchange rate quoted today?

Under U.S.GAAP, what is the proper treatment of unrealized foreign exchange losses?

What is foreign exchange risk exposure?

What is "hedge accounting?"

Under U.S.GAAP, what is the proper treatment of unrealized foreign exchange gains?

What kind of exposure exists for recognized foreign currency assets and liabilities?

When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:

What is the requirement for reporting derivatives under international accounting standards and U.S.GAAP?

Which of the following is done when accounting for a cash flow hedge, but is not done when accounting for a fair value hedge?

What is a "strike price?"

The number of Japanese yen (¥) required today to buy one U.S.dollar ($) today is called:

Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized?

For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted on OANDA.com was $1.563 per €1.What should Pat plan to pay for €1,000?

Under U.S.GAAP, what method of amortizing discounts or premiums on forward contracts must be used?

Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Translation of Foreign Currency Financial Statements

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

International Transfer Pricing

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters

Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

What has occurred when one company arranges to buy a foreign currency sometime in the future, at an exchange rate quoted today?

Under U.S.GAAP, what method is required to account for foreign currency transactions?

What term is used to describe the circumstances under which Amazing Corporation is entering the forward contract?

A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:

What has occurred when one company purchases the right to buy a foreign currency sometime in the future at an exchange rate quoted today?

Under U.S.GAAP, what is the proper treatment of unrealized foreign exchange losses?

What is foreign exchange risk exposure?

What is "hedge accounting?"

Under U.S.GAAP, what is the proper treatment of unrealized foreign exchange gains?

What kind of exposure exists for recognized foreign currency assets and liabilities?

When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:

What is the requirement for reporting derivatives under international accounting standards and U.S.GAAP?

Which of the following is done when accounting for a cash flow hedge, but is not done when accounting for a fair value hedge?

What is a "strike price?"

The number of Japanese yen (¥) required today to buy one U.S.dollar ($) today is called:

Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized?

For an upcoming trip, Pat wants to buy Euros at the local bank when the current exchange rate quoted on OANDA.com was $1.563 per €1.What should Pat plan to pay for €1,000?

Under U.S.GAAP, what method of amortizing discounts or premiums on forward contracts must be used?

Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?

Introduction to International Accounting

Worldwide Accounting Diversity

International Convergence of Financial Reporting

International Financial Reporting Standards: Part I

International Financial Reporting Standards: Part II

Comparative Accounting

Translation of Foreign Currency Financial Statements

Additional Financial Reporting Issues

Analysis of Foreign Financial Statements

International Taxation

International Transfer Pricing

Strategic Accounting Issues in Multinational Corporations

Comparative International Auditing and Corporate Governance

International Corporate Social Reporting

Filters