Exam 11: Multinational Accounting: Foreign Currency Transactions and Financial Instruments

Taste Bits Inc.purchased chocolates from Switzerland for 200,000 Swiss francs (SFr)on December 1,20X8.Payment is due on January 30,20X9.On December 1,20X8,the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows: -Based on the preceding information,the entries on January 30,20X9,include a:

If 1 British pound can be exchanged for 180 cents of U.S.currency,what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds? A.1/180 B.1/.56 C.1.8/1 D.1/1.8

Corporation X has a number of exporting transactions with companies based in Vietnam.Exporting activities result in receivables.If the settlement currency is the US dollar,which of the following will happen by changes in the direct or indirect exchange rates?

Myway Company sold equipment to a Canadian company for 100,000 Canadian dollars (C$)on January 1,20X9 with settlement to be in 60 days.On the same date,Alman entered into a 60-day forward contract to sell 100,000 Canadian dollars at a forward rate of 1 C$ = $.94 in order to manage its exposed foreign currency receivable.The forward contract is not designated as a hedge.The spot rates were: -Based on the preceding information,had Myway not used the forward exchange contract,net income for the year would have:

All of the following are true statements when measuring hedge effectiveness except:

Heavy Company sold metal scrap to a Brazilian company for 200,000 Brazilian reals on December 1,20X8,with payment due on January 20,20X9.The exchange rates were: -Based on the preceding information,what is the Heavy's overall net gain or net loss from its foreign currency exposure related to this transaction?

An investor purchases a put option with a strike price of $100 for $3.This option is considered "in the money" if the underlying is trading:

On December 1,20X8,Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share.Winston classifies them as available-for-sale securities.On this same date,it decides to hedge against a possible decline in the value of the securities by purchasing,at a cost of $250,an at-the-money put option to sell the 100 shares at $40 per share.The option expires on February 20,20X9.Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20,20X9. -Based on the preceding information,what is the market price of Linked Corporation stock on December 31,20X8?

On December 5,20X8,Texas based Imperial Corporation purchased goods from a Saudi Arabian firm for 100,000 riyals (SAR),to be paid on January 10,20X9.The transaction is denominated in Saudi riyals.Imperial's fiscal year ends on December 31,and its reporting currency is the U.S.dollar.The exchange rates are: -Based on the preceding information,what journal entry would Imperial make on December 31,20X8,to revalue foreign currency payable to equivalent U.S.dollar value?

If 1 British pound can be exchanged for 180 cents of U.S.currency,what fraction should be used to compute the indirect quotation of the exchange rate expressed in British pounds?

Spiralling crude oil prices prompted AMAR Company to purchase call options on oil as a price-risk-hedging device to hedge the expected increase in prices on an anticipated purchase of oil.On November 30,20X8,AMAR purchases call options for 20,000 barrels of oil at $100 per barrel at a premium of $4 per barrel,with a February 1,20X9,call date.The following is the pricing information for the term of the call: The information for the change in the fair value of the options follows: On February 1,20X9,AMAR sells the options at their value on that date and acquires 20,000 barrels of oil at the spot price.On April 1,20X9,AMAR sells the oil for $112 per barrel. -Based on the preceding information,the entries made on April 1,20X9 will include:

Spartan Company purchased interior decoration material from Egypt for 100,000 Egyptian pounds on September 5,20X8,with payment due on December 2,20X8.Additionally,on September 5,Spartan acquired a 90-day forward contract to purchase 100,000 Egyptian pounds of E $\le$ = $.1850.The forward contract was acquired to manage the exposed net liability position in Egyptian pounds,but it was not designated as a hedge.The spot rates were: September 5,20X8 E 1 = $0.1835 December 2,20X8 E 1 = $0.1865 -Based on the preceding information,in the entry made on December 2^nd to revalue foreign currency receivable to current equivalent U.S.dollar value,

On December 1,20X8,Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds ( )at a forward rate of 1 = $1.78.On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros (€)at a forward rate of €1 = $1.42. The rates are as follows: Hedge had no other speculation transactions in 20X8 and 20X9.Ignore taxes. -Based on the preceding information,what is the effect of the British pound speculative contract on 20X8 net income?

Based on the preceding information,what is the net gain or loss on the euro speculative contract? A.$8,000 gain B.$6,000 gain C.$3,000 loss D.$1,000 loss

Suppose the direct foreign exchange rates in U.S.dollars are: -Based on the information given above,how many U.S.dollars must be paid for a purchase of citrus fruits costing 10,000 Cyprus pounds?

Suppose the direct foreign exchange rates in U.S.dollars are: -Based on the information given above,how many Singapore dollars are required to purchase goods costing 10,000 US dollars?

On November 1,20X8,Denver Company borrowed 500,000 local currency units (LCU)from a foreign lender evidenced by an interest-bearing note due on November 1,20X9,which is denominated in the currency of the lender.The U.S.dollar equivalent of the note principal was as follows: In its income statement for 20X9,what amount should Denver include as a foreign exchange gain or loss on the note principal?

On December 1,20X8,Winston Corporation acquired 100 shares of Linked Corporation at a cost of $40 per share.Winston classifies them as available-for-sale securities.On this same date,it decides to hedge against a possible decline in the value of the securities by purchasing,at a cost of $250,an at-the-money put option to sell the 100 shares at $40 per share.The option expires on February 20,20X9.Selected information concerning the fair values of the investment and the options follow: Assume that Winston exercises the put option and sells Linked shares on February 20,20X9. -Based on the preceding information,what is the market price of Linked Corporation stock on February 20,20X9?

Levin company entered into a forward contract to speculate in the foreign currency.It sold 100,000 foreign currency units under a contract dated November 1,20X8,for delivery on January 31,20X9: In its income statement for the year ended December 31,20X8,what amount of loss should Levin report from this forward contract? A.$0 B.$300 C.$200 D.$100

Taste Bits Inc.purchased chocolates from Switzerland for 200,000 Swiss francs (SFr)on December 1,20X8.Payment is due on January 30,20X9.On December 1,20X8,the company also entered into a 60-day forward contract to purchase 100,000 Swiss francs.The forward contract is not designated as a hedge.The rates were as follows: -Based on the preceding information,the entries on December 31,20X8,include a: