Exam 7: Foreign Currency Transactions and Hedging Foreign Exchange Risk

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 31,20x1?

What has occurred when one company arranges to buy a foreign currency some time in the future,at an exchange rate quoted today?

How should discounts or premiums on forward contracts be treated if the derivative is hedging a foreign-currency-denominated asset?

In the years between 1990 and 2001 when global gross domestic product rose 27%,what was the growth in global exports?

A non-cancelable order of a product that specifies the foreign currency price and date of delivery is called a:

What is "hedge accounting?"

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

Under U.S.GAAP,to qualify for hedge accounting which of the following conditions must be met?

Why was there very little fluctuation in the foreign exchange rate in the period 1945-1973?

What was the effect of introducing the Euro with respect to hedging?

A bank exchanging foreign currency makes its profit in what manner?

What has occurred when one company purchases the right to buy a foreign currency some time in the future at an exchange rate quoted today?

In hedge accounting,which of the following items is a bona fide exposure?

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. -Assume that on November 1,20x1 Zamfir Company enters a forward contract to buy 2,000,000 rubles on February 1,20x2. How should Zamfir report the forward contract on December 31,20x1?

A noncancelable sales order that specifies foreign currency price and date of delivery is known as a:

Which of the following statements is true about the Euro?

What term is used for an option with a positive intrinsic value?