Question 1

Forwards are traded on organized exchanges.

Accepted Answer

A) True 
 B)False

Question 2

If the forward rate is less than the spot rate on a direct quote basis, the foreign currency would be selling at a

Accepted Answer

A)  cross rate. 
B)  premium. 
C)  discount. 
D)  bid rate. 
A)  cross rate. 
B)  premium. 
C)  discount. 
D)  bid rate.

Question 3

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 155 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

Accepted Answer

A)  yes. 
B)  no 
C)  It depends on the June 1 spot rate. 
D)  This is not an appropriate situation for an option. 
A)  yes. 
B)  no 
C)  It depends on the June 1 spot rate. 
D)  This is not an appropriate situation for an option.

Question 4

Assuming the tax treatment for foreign currency transactions, what is the foreign exchange gain or loss on October 31?

Accepted Answer

A)  $300 loss 
B)  $450 loss 
C)  $450 gain 
D)  $150 loss 
E)  gain or loss is deferred 
A)  $300 loss 
B)  $450 loss 
C)  $450 gain 
D)  $150 loss 
E)  gain or loss is deferred

Question 5

Assume that RadCo International purchases ski equipment on account from a German exporter on October 1 and that the sale is denominated in 500,000 German marks. RadCo closes its books at the end of each month, and the payable is due on November 15. The following are the relevant exchange rates.
 $ \begin{array}{lr}\text { Spot rate on October 1 } & \$ 0.5939 \ \text { Forward rate for Nov 15 delivery } & \$ 0.5945 \ \text { Spot rate on October 31 } & \$ 0.5948 \ \text { Spot rate on Nov 15 } & \text { S0.5941 }\end{array} $

Questions 34-38 assumes the treatment of FASB Statement 52 and that no forward contract is entered into.
-What is the dollar value of purchases on October 31?

Accepted Answer

A)  $297,050 
B)  $296,950 
C)  $297,250 
D)  $297,400 
A)  $297,050 
B)  $296,950 
C)  $297,250 
D)  $297,400

Question 6

According to IAS 21, the preferred treatment for recognizing gains and losses on foreign currency transactions

Accepted Answer

A)  is similar to the way U.S. tax accounting treats gains and losses. 
B)  is to recognize differences as income or expense in the period in which they arise. 
C)  follows the German approach of conservatism. 
D)  is to recognize losses but not gains in the period in which they arise. 
A)  is similar to the way U.S. tax accounting treats gains and losses. 
B)  is to recognize differences as income or expense in the period in which they arise. 
C)  follows the German approach of conservatism. 
D)  is to recognize losses but not gains in the period in which they arise.

Question 7

In the U.S. a firm's foreign exchange management program

Accepted Answer

A)  does not have to be disclosed 
B)  is required 
C)  is usually outsourced to a bank 
D)  may not be disclosed but the various risks of the securities must be disclosed 
A)  does not have to be disclosed 
B)  is required 
C)  is usually outsourced to a bank 
D)  may not be disclosed but the various risks of the securities must be disclosed

Question 8

Assume that RadCo International purchases ski equipment on account from a German exporter on October 1 and that the sale is denominated in 500,000 German marks. RadCo closes its books at the end of each month, and the payable is due on November 15. The following are the relevant exchange rates.
 $ \begin{array}{lr}\text { Spot rate on October 1 } & \$ 0.5939 \ \text { Forward rate for Nov 15 delivery } & \$ 0.5945 \ \text { Spot rate on October 31 } & \$ 0.5948 \ \text { Spot rate on Nov 15 } & \text { S0.5941 }\end{array} $

Questions 34-38 assumes the treatment of FASB Statement 52 and that no forward contract is entered into.
-How much cash will RadCo International have to pay?

Accepted Answer

A)  $297,050 
B)  $296,950 
C)  $297,250 
D)  $297,400 
A)  $297,050 
B)  $296,950 
C)  $297,250 
D)  $297,400

Question 9

The first step in a foreign exchange risk management strategy is

Accepted Answer

A)  organize and implement a reporting system that monitors exposure and exchange-rate movements 
B)  define and measure exposure 
C)  formulate strategies for hedging exposure 
D)  adopt a policy assigning responsibility for minimizing exposure 
A)  organize and implement a reporting system that monitors exposure and exchange-rate movements 
B)  define and measure exposure 
C)  formulate strategies for hedging exposure 
D)  adopt a policy assigning responsibility for minimizing exposure

Question 10

An exposed asset position

Accepted Answer

A)  only exists when the foreign subsidiary's currency is weakening 
B)  is one where the liabilities translated at the current rate exceed the assets translated at the current rate 
C)  is one where the assets translated at the current rate exceed the assets translated at the historical rate 
D)  is one where the assets translated at the current rate exceed the liabilities translated at the current rate 
A)  only exists when the foreign subsidiary's currency is weakening 
B)  is one where the liabilities translated at the current rate exceed the assets translated at the current rate 
C)  is one where the assets translated at the current rate exceed the assets translated at the historical rate 
D)  is one where the assets translated at the current rate exceed the liabilities translated at the current rate

Question 11

Assume that RadCo International purchases ski equipment on account from a German exporter on October 1 and that the sale is denominated in 500,000 German marks. RadCo closes its books at the end of each month, and the payable is due on November 15. The following are the relevant exchange rates.
 $ \begin{array}{lr}\text { Spot rate on October 1 } & \$ 0.5939 \ \text { Forward rate for Nov 15 delivery } & \$ 0.5945 \ \text { Spot rate on October 31 } & \$ 0.5948 \ \text { Spot rate on Nov 15 } & \text { S0.5941 }\end{array} $

Questions 34-38 assumes the treatment of FASB Statement 52 and that no forward contract is entered into.
-What is the amount of the foreign exchange gain or loss that it will recognize on November 15?

Accepted Answer

A)  $350 gain 
B)  $200 loss 
C)  $100 loss 
D)  $350 loss 
E)  gain or loss is deferred 
A)  $350 gain 
B)  $200 loss 
C)  $100 loss 
D)  $350 loss 
E)  gain or loss is deferred

Question 12

If a U.S exporter were to receive payment in U.S. dollars from a British importer

Accepted Answer

A)  there is a transaction exposure 
B)  there is an economic exposure 
C)  there is no exposure 
D)  there is a translation exposure 
A)  there is a transaction exposure 
B)  there is an economic exposure 
C)  there is no exposure 
D)  there is a translation exposure

Question 13

The right but not the obligation to trade foreign currency in the future is a

Accepted Answer

A)  forward contract. 
B)  swap. 
C)  premium. 
D)  option. 
A)  forward contract. 
B)  swap. 
C)  premium. 
D)  option.

Question 14

The offer rate is

Accepted Answer

A)  the rate at which the foreign exchange trader will buy foreign currency. 
B)  the rate at which the foreign exchange trader will sell foreign currency. 
C)  the rate at which the company doing business with the trader will buy foreign currency. 
D)  the rate at which the company doing business with the trader will sell foreign currency. 
A)  the rate at which the foreign exchange trader will buy foreign currency. 
B)  the rate at which the foreign exchange trader will sell foreign currency. 
C)  the rate at which the company doing business with the trader will buy foreign currency. 
D)  the rate at which the company doing business with the trader will sell foreign currency.

Question 15

An option where the holder has the right to buy foreign currency from the writer of the option is a

Accepted Answer

A)  forward option. 
B)  put option. 
C)  call option. 
D)  swap option. 
A)  forward option. 
B)  put option. 
C)  call option. 
D)  swap option.

Question 16

A simultaneous spot and forward transaction is a (an)

Accepted Answer

A)  direct transaction. 
B)  indirect transaction. 
C)  swap. 
D)  option. 
A)  direct transaction. 
B)  indirect transaction. 
C)  swap. 
D)  option.

Question 17

Assume that Lewis International sells running shoes to a British importer on June 1 and that the sale is denominated at £75,000 and will be collected on July 15. Also assume that Lewis closes its books at the end of each month. The following are the relevant exchange rates.
 $ \begin{array}{ll}\text { Spot rate on June 1 } & \$ 1.6200 \ \text { Forward rate for July } & \ \text { 15 delivery } & \$ 1.6000 \ \text { Spot rate on June 30 } & \$ 1.6100 \ \text { Spot rate on July 15 } & \$ 1.5950\end{array} $

For questions 25-29, assume FASB Statement 52 treatment and that Lewis enters into a forward contract.
-What is the dollar value of the sale on July 15?

Accepted Answer

A)  $120,750 
B)  $120,000 
C)  $119,625 
D)  $121,500 
A)  $120,750 
B)  $120,000 
C)  $119,625 
D)  $121,500

Question 18

The amount of the local currency equivalent to one unit of the foreign currency is the

Accepted Answer

A)  direct rate. 
B)  indirect rate. 
C)  bid rate. 
D)  offer rate. 
A)  direct rate. 
B)  indirect rate. 
C)  bid rate. 
D)  offer rate.

Question 19

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 162 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

Accepted Answer

A)  yes 
B)  no 
C)  It depends on the June 1 spot rate. 
D)  This is not an appropriate situation for an option. 
A)  yes 
B)  no 
C)  It depends on the June 1 spot rate. 
D)  This is not an appropriate situation for an option.

Question 20

In the case of a forward contract to hedge a foreign currency transaction,

Accepted Answer

A)  the gain or loss on the contract should be deferred and included in the measurement of the related foreign currency transaction. 
B)  the gain or loss on the contract should be recognized in the period in which the exchange rate changes. 
C)  a gain will occur if the foreign currency strengthens against the dollar, and a loss will occur if the foreign currency weakens against the dollar. 
D)  the related foreign currency transaction will be recorded on the books at each new exchange rate until the monetary part of the transactions (the receivable or payable) is settled. 
A)  the gain or loss on the contract should be deferred and included in the measurement of the related foreign currency transaction. 
B)  the gain or loss on the contract should be recognized in the period in which the exchange rate changes. 
C)  a gain will occur if the foreign currency strengthens against the dollar, and a loss will occur if the foreign currency weakens against the dollar. 
D)  the related foreign currency transaction will be recorded on the books at each new exchange rate until the monetary part of the transactions (the receivable or payable) is settled.

Forwards are traded on organized exchanges.

If the forward rate is less than the spot rate on a direct quote basis, the foreign currency would be selling at a

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 155 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

Assuming the tax treatment for foreign currency transactions, what is the foreign exchange gain or loss on October 31?

According to IAS 21, the preferred treatment for recognizing gains and losses on foreign currency transactions

In the U.S. a firm's foreign exchange management program

The first step in a foreign exchange risk management strategy is

An exposed asset position

If a U.S exporter were to receive payment in U.S. dollars from a British importer

The right but not the obligation to trade foreign currency in the future is a

The offer rate is

An option where the holder has the right to buy foreign currency from the writer of the option is a

A simultaneous spot and forward transaction is a (an)

The amount of the local currency equivalent to one unit of the foreign currency is the

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 162 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

In the case of a forward contract to hedge a foreign currency transaction,

International Accounting and International Business

International Accounting Patterns, Culture and Development

Comparative International Financial Accounting I

Comparative International Financial Accounting II

International Financial Statement Analysis

International Transparency and Disclosure

International Accounting Standards and Global Convergence

International Business Combinations, Goodwill and Intangibles

International Segment Reporting

Foreign Currency Transactions and Translation

International Accounting for Price Changes

Corporate Governance and Control of Global Operations

International Budgeting and Performance Evaluation

International Auditing Issues

International Taxation Issues

Filters

Exam 13: Foreign Exchange Risk Management

Forwards are traded on organized exchanges.

If the forward rate is less than the spot rate on a direct quote basis, the foreign currency would be selling at a

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 155 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

Assuming the tax treatment for foreign currency transactions, what is the foreign exchange gain or loss on October 31?

According to IAS 21, the preferred treatment for recognizing gains and losses on foreign currency transactions

In the U.S. a firm's foreign exchange management program

The first step in a foreign exchange risk management strategy is

An exposed asset position

If a U.S exporter were to receive payment in U.S. dollars from a British importer

The right but not the obligation to trade foreign currency in the future is a

The offer rate is

An option where the holder has the right to buy foreign currency from the writer of the option is a

A simultaneous spot and forward transaction is a (an)

The amount of the local currency equivalent to one unit of the foreign currency is the

Using the data for the problem, assume that you entered into an option with Goldman Sachs for one contract worth £75,000 at a premium of $.0325, a strike price of 162 and a brokerage fee of $25 to get into the option and also to exercise the option. Would you exercise the option?

In the case of a forward contract to hedge a foreign currency transaction,

International Accounting and International Business

International Accounting Patterns, Culture and Development

Comparative International Financial Accounting I

Comparative International Financial Accounting II

International Financial Statement Analysis

International Transparency and Disclosure

International Accounting Standards and Global Convergence

International Business Combinations, Goodwill and Intangibles

International Segment Reporting

Foreign Currency Transactions and Translation

International Accounting for Price Changes

Corporate Governance and Control of Global Operations

International Budgeting and Performance Evaluation

International Auditing Issues

International Taxation Issues

Filters