Question 1

What is the primary difference between a cash flow hedge and a fair value hedge?

Accepted Answer

A) The fair value hedge must completely offset the variability in the cash flow from the foreign currency receivable or payable. 
B) The cash flow hedge can only be used to offset potential foreign currency losses on accounts receivable. 
C) The cash flow hedge must completely offset the variability in cash flow from the foreign currency receivable or payable. 
D) The fair value hedge can only be used to offset the variability in cash flow from long-term fixed assets related to foreign currency fluctuations. 
A) The fair value hedge must completely offset the variability in the cash flow from the foreign currency receivable or payable. 
B) The cash flow hedge can only be used to offset potential foreign currency losses on accounts receivable. 
C) The cash flow hedge must completely offset the variability in cash flow from the foreign currency receivable or payable. 
D) The fair value hedge can only be used to offset the variability in cash flow from long-term fixed assets related to foreign currency fluctuations.

Question 2

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.
-What is the foreign currency exchange gain or loss on December 31,20x1?

Accepted Answer

A) $50,000 loss 
B) $50,000 gain 
C) $10,000 gain 
D) $10,000 loss 
A) $50,000 loss 
B) $50,000 gain 
C) $10,000 gain 
D) $10,000 loss

Question 3

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.
-Assuming that Amazing Corporation does not hedge this transaction,what is the amount of exchange gain or loss that it should show on its December 31,20x1 income statement?

Accepted Answer

A) Loss $1,000 
B) Loss $2,000 
C) Gain $1,000 
D) Gain $1,900 
A) Loss $1,000 
B) Loss $2,000 
C) Gain $1,000 
D) Gain $1,900

Question 4

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 5

When accounting for forward contracts,what is meant by the term "executory contract"?

Accepted Answer

A) No cash changes hands. 
B) The CEO of the company is the only one authorized to engage in the contract. 
C) There must be a price paid for the option. 
D) The contract is not valid unless both parties sign it. 
A) No cash changes hands. 
B) The CEO of the company is the only one authorized to engage in the contract. 
C) There must be a price paid for the option. 
D) The contract is not valid unless both parties sign it.

Question 6

What is a foreign currency transaction?

Accepted Answer

A) It is another name for an international transaction. 
B) It is a transaction that involves payment at a date sometime in the future. 
C) It is a business deal denominated in a currency other than a company's domestic currency. 
D) It is an economic event measured in a currency other than U.S.dollars. 
A) It is another name for an international transaction. 
B) It is a transaction that involves payment at a date sometime in the future. 
C) It is a business deal denominated in a currency other than a company's domestic currency. 
D) It is an economic event measured in a currency other than U.S.dollars.

Question 7

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 8

What kind of exposure exists for foreign currency firm commitments?

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 9

Northland Corporation recorded £1,000,000 in Accounts Receivable for sales to customers in the United Kingdom and recorded Accounts Payable of 2,000,000 yuan for product purchased from China. If Northland recorded a foreign currency exchange loss on its receivables and a foreign currency gain on its payables,what must have happened to each currency?

Accepted Answer

A) Yuan appreciated,Pound depreciated 
B) Yuan depreciated,Pound appreciated 
C) Yuan appreciated,Pound appreciated 
D) Yuan depreciated,Pound depreciated 
A) Yuan appreciated,Pound depreciated 
B) Yuan depreciated,Pound appreciated 
C) Yuan appreciated,Pound appreciated 
D) Yuan depreciated,Pound depreciated

Question 10

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.
-What is the fair value of the option on December 1,20x1?

Accepted Answer

A) $0 
B) $500 
C) $400 
D) $10,000 
A) $0 
B) $500 
C) $400 
D) $10,000

Question 11

According to the World Trade Organization,what was the size of international trade in 2008?

Accepted Answer

A) $7,000,000,000 (7 billion dollars) 
B) $70,000,000,000 (70 billion dollars) 
C) $37,000,000,000 (37 billion dollars) 
D) $16,000,000,000,000 (16 trillion dollars) 
A) $7,000,000,000 (7 billion dollars) 
B) $70,000,000,000 (70 billion dollars) 
C) $37,000,000,000 (37 billion dollars) 
D) $16,000,000,000,000 (16 trillion dollars)

Question 12

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 13

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.

Question 14

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 15

Why must the two-transaction approach be used for recording foreign currency transactions under U.S.GAAP?

Accepted Answer

A) The two-transaction approach is required under IFRS. 
B) U)S.GAAP requires conservatism in financial reporting. 
C) All other methods are excessively complicated to use and therefore obscure the essence of the transaction. 
D) Management made two decisions: one to sell and another to extend credit in a foreign currency. 
A) The two-transaction approach is required under IFRS. 
B) U)S.GAAP requires conservatism in financial reporting. 
C) All other methods are excessively complicated to use and therefore obscure the essence of the transaction. 
D) Management made two decisions: one to sell and another to extend credit in a foreign currency.

Question 16

What is "asset exposure" to foreign exchange risk?

Accepted Answer

A) the possibility that an asset denominated in U.S.dollars will decline in value because of changes in the foreign exchange rate 
B) the possibility that an asset denominated in a foreign currency will change in value because of a change in the foreign exchange rate 
C) the loss resulting from an import purchase when a foreign currency appreciates 
D) the loss resulting from an import purchase when a foreign currency depreciates 
A) the possibility that an asset denominated in U.S.dollars will decline in value because of changes in the foreign exchange rate 
B) the possibility that an asset denominated in a foreign currency will change in value because of a change in the foreign exchange rate 
C) the loss resulting from an import purchase when a foreign currency appreciates 
D) the loss resulting from an import purchase when a foreign currency depreciates

Question 17

For an upcoming trip,Pat wants to buy Euros at the local bank when the current exchange rate quoted on HYPERLINK "http://www.OANDA.com" http://www.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 18

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

Accepted Answer

A) effective interest rate method 
B) straight line method 
C) Companies may choose effective interest rate method or straight line method. 
D) Some other method must be used. 
A) effective interest rate method 
B) straight line method 
C) Companies may choose effective interest rate method or straight line method. 
D) Some other method must be used.

Question 19

Under U.S.GAAP,where are changes in the fair value of derivatives reported?

Accepted Answer

A) as part of "Accumulated Other Comprehensive Income" on the Balance Sheet 
B) They are not recognized until the options are exercised. 
C) Retained Earnings 
D) None of the above 
A) as part of "Accumulated Other Comprehensive Income" on the Balance Sheet 
B) They are not recognized until the options are exercised. 
C) Retained Earnings 
D) None of the above

Question 20

What information is needed to determine the fair value of a foreign currency forward contract?

Accepted Answer

A) The forward rate at the date the contract was entered 
B) The current forward rate for a contract that matures on the same dates as the forward contract that was entered into 
C) A discount rate to determine the present value of the contract 
D) All of the above information is needed 
A) The forward rate at the date the contract was entered 
B) The current forward rate for a contract that matures on the same dates as the forward contract that was entered into 
C) A discount rate to determine the present value of the contract 
D) All of the above information is needed

What is the primary difference between a cash flow hedge and a fair value hedge?

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

When accounting for forward contracts,what is meant by the term "executory contract"?

What is a foreign currency transaction?

What is a "strike price?"

What kind of exposure exists for foreign currency firm commitments?

According to the World Trade Organization,what was the size of international trade in 2008?

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

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

What is foreign exchange risk exposure?

Why must the two-transaction approach be used for recording foreign currency transactions under U.S.GAAP?

What is "asset exposure" to foreign exchange risk?

For an upcoming trip,Pat wants to buy Euros at the local bank when the current exchange rate quoted on HYPERLINK "http://www.OANDA.com" http://www.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?

Under U.S.GAAP,where are changes in the fair value of derivatives reported?

What information is needed to determine the fair value of a foreign currency forward contract?

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

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Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

What is the primary difference between a cash flow hedge and a fair value hedge?

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

When accounting for forward contracts,what is meant by the term "executory contract"?

What is a foreign currency transaction?

What is a "strike price?"

What kind of exposure exists for foreign currency firm commitments?

According to the World Trade Organization,what was the size of international trade in 2008?

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

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

What is foreign exchange risk exposure?

Why must the two-transaction approach be used for recording foreign currency transactions under U.S.GAAP?

What is "asset exposure" to foreign exchange risk?

For an upcoming trip,Pat wants to buy Euros at the local bank when the current exchange rate quoted on HYPERLINK "http://www.OANDA.com" http://www.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?

Under U.S.GAAP,where are changes in the fair value of derivatives reported?

What information is needed to determine the fair value of a foreign currency forward contract?

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