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

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

Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April 1,20X0 with settlement to be in 60 days.On the same date,Robert entered into a 60-day forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage its exposed foreign currency receivable.The forward contract is not designated as a hedge.The spot rates were as follows: -Based on the preceding information,the entry to revalue the foreign currency payable to current U.S.dollar value on May 31 will include a

Tinitoys,Inc. ,a domestic company,purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br.reals)on May 1,20X2.Payment is due on June 30,20X2.On May 1,20X2,Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals.The forward contract is not designated as a hedge.Tinitoys' fiscal year ends on May 31.The direct exchange rates were as follows: -Based on the preceding information,the entries on May 31,20X2,include a

Spiraling 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:

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 January 10,20X9,to revalue foreign currency payable to 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 overall effect of speculation on 20X9 net income?

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?

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?

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,which of the following is true of dollar's movement vis-à-vis Brazilian real during the period?

Tinitoys,Inc. ,a domestic company,purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br.reals)on May 1,20X2.Payment is due on June 30,20X2.On May 1,20X2,Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals.The forward contract is not designated as a hedge.Tinitoys' fiscal year ends on May 31.The direct exchange rates were as follows: -Based on the preceding information,the entries on June 30,20X2,include a

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 net gain or loss on the British pound speculative contract?

Suppose the direct foreign exchange rates in U.S.dollars are as follows: 1 Swiss franc = $1.0371 1 Swedish krona = $0.1526 -Based on the information given above,how many U.S.dollars must be paid for a purchase of goods costing 20,000 Swedish krona?

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?

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:

Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April 1,20X0 with settlement to be in 60 days.On the same date,Robert entered into a 60-day forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage its exposed foreign currency receivable.The forward contract is not designated as a hedge.The spot rates were as follows: -Based on the preceding information,had Robert not used the forward exchange contract,what would have been the foreign currency transaction gain or loss for the year?

On December 1,20X8,Winston Corporation acquired 10 deep discount bonds from Linked Corporation at a cost of $400 per bond.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 10 bonds at $400 per bond.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 bonds on February 20,20X9. -Based on the preceding information,the journal entry made on December 31,20X8 to record the decrease in the time value of the options will include:

On December 1,20X8,Winston Corporation acquired 10 deep discount bonds from Linked Corporation at a cost of $400 per bond.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 10 bonds at $400 per bond.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 bonds on February 20,20X9. -Based on the preceding information,what is the market price of Linked Corporation bonds on February 20,20X9?

The fair market value of a near-month call option with a strike price of $45 is $5,when the stock is trading at $48. -Based on the preceding information,which of the following is true of the intrinsic and time values associated with this option.

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?

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 euro speculative contract on 20X9 net income?