Exam 9: Measuring and Managing Translation and Transaction Exposure

The most important aspect of the FASB?52 is that

American Airlines hedges a £2.5 million receivable by selling pounds forward. If the spot rate is £1 = $1.73 and the 90?day forward rate is $1.7158, what is American's cost of hedging?

Hedging cannot provide protection against ________ exchange rate changes.

Compaq Computer has a £1 million receivable that it expects to collect in one year. Suppose the interest rate on pounds is 15%. How could Compaq protect this receivable using a money market hedge?

A Japanese firm sells TV sets to an American importer for one billion yen payable in 90 days. To protect against exchange risk, the importer could

Suppose PepsiCo hedges a ¥1 billion dividend it expects to receive from its Japanese subsidiary in 90 days with a forward contract. The current spot rate is ¥150/$1 and the 90?day forward rate is ¥149/$1. If the spot rate in 90 days is ¥154/$, how much has this forward market hedge cost PepsiCo?

Transaction gains and losses that result from adjusting assets and liabilities denominated in a currency other than the functional currency must appear on the foreign unit's income statement unless the gains or losses are attributable to

Translation exposure reflects the exposure of a company's

Under the current/noncurrent method, what is Ajax's translation gain (loss).?

Under a historical cost accounting system, as the United States now has, most accounting theoreticians would probably argue that the appropriate method for translation is the

If you fear the dollar will rise against the Spanish peseta, with a resulting adverse change in the dollar value of the equity of your Spanish subsidiary, you can hedge by

What value can Alcoa lock in for its FF 3 million receivable if it executes a forward contract today?

Under the temporal method, what is Ajax's translation gain (loss).?

Under the monetary/non-monetary method, what is Ajax's translation gain (loss).?

A __________ involves offsetting exposures in one currency with exposures in the same or another currency, where exchange rates are expected to move in such a way that losses on the first exposed position should be offset by gains on the second currency exposure and vice versa.

The basic hedging strategy involves

The functional currency of a German subsidiary that both manufactures and sells in Germany and competes primarily against Japanese firms

Under FASB 52, most financial statements must be translated using the

On March 1, Bechtel submits a franc?denominated bid on a project in France. Bechtel will not learn until June 1 whether it has won the contract. What is the most appropriate way for Bechtel to manage the exchange risk on this contract?

Under FASB 52, foreign exchange gains and losses