Question 1

The number of U.S.dollars ($)today to buy one U.K.pound (£)six months from now is called:

Accepted Answer

A) the spot rate 
B) the exact rate 
C) the forward rate 
D) the prime rate 
A) the spot rate 
B) the exact rate 
C) the forward rate 
D) the prime rate C

Question 2

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. A

Question 3

Use the following to answer questions :
On December 1,20x1 Pimlico made sales to a customer in India and recorded Accounts Receivable of 10,000,000 rupees. The customer has until March 1,20x2 to pay. On December 1,20x1,Pimlico paid $500 for a put option to sell rupees at a strike price of $2.30 per 100 rupees on March 1,20x2,which was the spot rate on December 1,20x1. On December 31,20x1,the spot rate was $2.80 per 100 rupees and the option premium was $0.004 per 100 rupees.
-If the spot rate on March 1,20x2 was $2.45 per 100 rupees,what is the foreign currency exchange gain or loss that should be recorded that day?

Accepted Answer

A) $15,000 gain 
B) $15,000 loss 
C) $35,000 gain 
D) $35,000 loss 
A) $15,000 gain 
B) $15,000 loss 
C) $35,000 gain 
D) $35,000 loss D

Question 4

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 5

Use the following to answer questions:
Amazing Corporation,a U.S.enterprise,sold product to a customer in Wales on October 1,20x1 for £100,000 with payment required on April 1,20x1. Relevant exchange rates are:   The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95.
-Assume that Amazing Corporation enters a forward contract on October 1,20x1 to sell £100,000 six months hence,on April 1,20x2. How should Amazing Corporation report the forward contract on its December 31,20x1 financial statements?

Accepted Answer

A) Asset $1,950 
B) Liability $1,950 
C) Asset $1,000 
D) Asset $950 
A) Asset $1,950 
B) Liability $1,950 
C) Asset $1,000 
D) Asset $950

Question 6

What is the intrinsic value of a foreign currency option?

Accepted Answer

A) the difference between the spot rate and the strike price 
B) the gain on the option if it was exercised immediately 
C) the chance that a currency will rise over time to make the option in the money 
D) the difference between a call option and a put option 
A) the difference between the spot rate and the strike price 
B) the gain on the option if it was exercised immediately 
C) the chance that a currency will rise over time to make the option in the money 
D) the difference between a call option and a put option

Question 7

Under International Accounting Standards Board rules,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.

Question 8

When a currency is allowed to increase or decrease in value relative to other currencies,the currency is said to:

Accepted Answer

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

Question 9

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 10

How is the fair value of a foreign currency option calculated?

Accepted Answer

A) by using the Box-Jenkins technique 
B) using the principles of the Black-Scholes pricing model 
C) through an arms-length transaction 
D) using quotes given daily in the Wall Street Journal 
A) by using the Box-Jenkins technique 
B) using the principles of the Black-Scholes pricing model 
C) through an arms-length transaction 
D) using quotes given daily in the Wall Street Journal

Question 11

What is a "foreign exchange rate?"

Accepted Answer

A) the price to buy a foreign currency 
B) the price to buy foreign goods 
C) the difference between the price of goods in a foreign currency and the price in a domestic currency 
D) the cost to hold all monetary assets in a single currency 
A) the price to buy a foreign currency 
B) the price to buy foreign goods 
C) the difference between the price of goods in a foreign currency and the price in a domestic currency 
D) the cost to hold all monetary assets in a single currency

Question 12

On May 1,20x1,Usstar purchased a put option to sell £50,000 on April 30,20x2 at a strike price equal to $2,which was the spot rate on May 1,20x1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1,20x1?

Accepted Answer

A) Debit FOREIGN CURRENCY OPTION for $100,500. 
B) Credit FOREIGN CURRENCY OPTION for $100,500. 
C) Debit FOREIGN CURRENCY OPTION for $500. 
D) Debit HEDGE EXPENSE for $500. 
A) Debit FOREIGN CURRENCY OPTION for $100,500. 
B) Credit FOREIGN CURRENCY OPTION for $100,500. 
C) Debit FOREIGN CURRENCY OPTION for $500. 
D) Debit HEDGE EXPENSE for $500.

Question 13

Under U.S.GAAP,foreign exchange losses should be recorded by:

Accepted Answer

A) debiting "Foreign Exchange Loss". 
B) crediting "Foreign Exchange Loss". 
C) debiting "Retained Earnings". 
D) debiting "Sales Revenue". 
A) debiting "Foreign Exchange Loss". 
B) crediting "Foreign Exchange Loss". 
C) debiting "Retained Earnings". 
D) debiting "Sales Revenue".

Question 14

How should U.S.companies record receivables and payables from international trade that are denominated in foreign currencies?

Accepted Answer

A) All assets and liabilities of U.S.companies must be recorded in U.S.dollars. 
B) Conservatism would dictate that liabilities should be recorded in the currency in which they are payable,but assets should be recorded in U.S.dollars,regardless of what currency will be received. 
C) There should be separate receivable and payable accounts for each currency that is used by the company. 
D) The company should choose any one currency to use for recording receivable and payables so that there is consistency in the accounts. 
A) All assets and liabilities of U.S.companies must be recorded in U.S.dollars. 
B) Conservatism would dictate that liabilities should be recorded in the currency in which they are payable,but assets should be recorded in U.S.dollars,regardless of what currency will be received. 
C) There should be separate receivable and payable accounts for each currency that is used by the company. 
D) The company should choose any one currency to use for recording receivable and payables so that there is consistency in the accounts.

Question 15

Use the following to answer questions:
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:   The company's incremental borrowing rate provides a discount rate of 0.975 for three months.
-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 16

Which of the following statements is true about hedge accounting under U.S.GAAP?

Accepted Answer

A) Companies may choose whether to account for derivatives as cash flow hedges or fair value hedges. 
B) If a derivative qualifies as a cash flow hedge,a company may choose to account for it as a fair value hedge. 
C) If a derivative is considered a cash flow hedge,it must be accounted for as such. 
D) Hedge accounting is only advantageous when a foreign currency depreciates between the transaction date and the payment date. 
A) Companies may choose whether to account for derivatives as cash flow hedges or fair value hedges. 
B) If a derivative qualifies as a cash flow hedge,a company may choose to account for it as a fair value hedge. 
C) If a derivative is considered a cash flow hedge,it must be accounted for as such. 
D) Hedge accounting is only advantageous when a foreign currency depreciates between the transaction date and the payment date.

Question 17

The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies?

Accepted Answer

A) Country X is using the Euro. 
B) Country X has pegged its currency to the currency of Country Y. 
C) Country X has an undesirable currency. 
D) Country X allows its currency to float relative to the currency of Country Y. 
A) Country X is using the Euro. 
B) Country X has pegged its currency to the currency of Country Y. 
C) Country X has an undesirable currency. 
D) Country X allows its currency to float relative to the currency of Country Y.

Question 18

Use the following to answer questions:
Amazing Corporation,a U.S.enterprise,sold product to a customer in Wales on October 1,20x1 for £100,000 with payment required on April 1,20x1. Relevant exchange rates are:   The discount factor corresponding to the company's incremental borrowing rate for 6 months is 0.95.
-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

Question 19

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 20

King's Bank,a British company,purchases market research services from Harris Interactive,a U.S.company,for a contract price to be paid in U.S.dollars when the report is delivered three months later.How would King's Bank like to see the exchange rate move,assuming it isn't hedging the transaction.

Accepted Answer

A) It hopes that the U.S.dollar appreciates in value against the British pound. 
B) It hopes that the British pound appreciates in value against the U.S.dollar. 
C) It makes no difference,since they are the customer and the sale takes place in the U.K. 
D) It hopes that there is no change between the spot rate and the forward rate. 
A) It hopes that the U.S.dollar appreciates in value against the British pound. 
B) It hopes that the British pound appreciates in value against the U.S.dollar. 
C) It makes no difference,since they are the customer and the sale takes place in the U.K. 
D) It hopes that there is no change between the spot rate and the forward rate.

The number of U.S.dollars ($)today to buy one U.K.pound (£)six months from now is called:

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

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

What is the intrinsic value of a foreign currency option?

Under International Accounting Standards Board rules,what method is required to account for foreign currency transactions?

When a currency is allowed to increase or decrease in value relative to other currencies,the currency is said to:

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

How is the fair value of a foreign currency option calculated?

What is a "foreign exchange rate?"

On May 1,20x1,Usstar purchased a put option to sell £50,000 on April 30,20x2 at a strike price equal to $2,which was the spot rate on May 1,20x1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1,20x1?

Under U.S.GAAP,foreign exchange losses should be recorded by:

How should U.S.companies record receivables and payables from international trade that are denominated in foreign currencies?

Which of the following statements is true about hedge accounting under U.S.GAAP?

The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies?

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

King's Bank,a British company,purchases market research services from Harris Interactive,a U.S.company,for a contract price to be paid in U.S.dollars when the report is delivered three months later.How would King's Bank like to see the exchange rate move,assuming it isn't hedging the transaction.

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

The number of U.S.dollars ($)today to buy one U.K.pound (£)six months from now is called:

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

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

What is the intrinsic value of a foreign currency option?

Under International Accounting Standards Board rules,what method is required to account for foreign currency transactions?

When a currency is allowed to increase or decrease in value relative to other currencies,the currency is said to:

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

How is the fair value of a foreign currency option calculated?

What is a "foreign exchange rate?"

On May 1,20x1,Usstar purchased a put option to sell £50,000 on April 30,20x2 at a strike price equal to $2,which was the spot rate on May 1,20x1. Usstar paid a premium of $0.01 per pound. How should the option be recorded on May 1,20x1?

Under U.S.GAAP,foreign exchange losses should be recorded by:

How should U.S.companies record receivables and payables from international trade that are denominated in foreign currencies?

Which of the following statements is true about hedge accounting under U.S.GAAP?

The central bank of Country X buys and sells its own currency to ensure that the currency is always exchanged in a ratio of 2:1 with the currency of Country Y. What can we conclude about these two currencies?

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

King's Bank,a British company,purchases market research services from Harris Interactive,a U.S.company,for a contract price to be paid in U.S.dollars when the report is delivered three months later.How would King's Bank like to see the exchange rate move,assuming it isn't hedging the transaction.

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