Question 1

An example of an operating hedging strategy is

Accepted Answer

A)  a forward option. 
B)  a put option. 
C)  building a plant in foreign market 
D)  a swap. 
A)  a forward option. 
B)  a put option. 
C)  building a plant in foreign market 
D)  a swap.

Question 2

The institution established to promote exchange rate stability worldwide is the

Accepted Answer

A)  United Nations. 
B)  Organization for Monetary Union. 
C)  International Monetary Fund. 
D)  Global Exchange Rate Coordinating Commission. 
A)  United Nations. 
B)  Organization for Monetary Union. 
C)  International Monetary Fund. 
D)  Global Exchange Rate Coordinating Commission.

Question 3

If the forward rate is greater 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 4

The premium or discount is

Accepted Answer

A)  adjusted for foreign exchange gains and losses over the life of the contract. 
B)  an adjustment to the purchases account. 
C)  is taken to the income statement when the contract is entered into. 
D)  is deferred until RadCo pays the German supplier. 
A)  adjusted for foreign exchange gains and losses over the life of the contract. 
B)  an adjustment to the purchases account. 
C)  is taken to the income statement when the contract is entered into. 
D)  is deferred until RadCo pays the German supplier.

Question 5

Which of the following is true concerning the accounting for a foreign currency option?

Accepted Answer

A)  Hedge accounting is allowed when the characteristics and terms of the transaction cannot be identified. 
B)  Hedge accounting is not allowed when the anticipated transaction will most likely occur. 
C)  The option is carried as fair value on the balance sheet. 
D)  Options gains are deferred, whereas options losses are recognized in the period in which they occur. 
A)  Hedge accounting is allowed when the characteristics and terms of the transaction cannot be identified. 
B)  Hedge accounting is not allowed when the anticipated transaction will most likely occur. 
C)  The option is carried as fair value on the balance sheet. 
D)  Options gains are deferred, whereas options losses are recognized in the period in which they occur.

Question 6

An option is considered "in-the-money" if the strike price is unfavorable relative to the market price.

Accepted Answer

A) True 
 B)False

Question 7

The most widely used exchange rate regime is the

Accepted Answer

A)  pegged system with one percent flexibility. 
B)  limited flexibility system with 2 1/4 percent flexibility. 
C)  floating exchange rate system. 
D)  dollar-based system. 
A)  pegged system with one percent flexibility. 
B)  limited flexibility system with 2 1/4 percent flexibility. 
C)  floating exchange rate system. 
D)  dollar-based system.

Question 8

International foreign exchange exposures include all of the following except

Accepted Answer

A)  economic 
B)  Fisher effect 
C)  translation 
D)  transaction 
A)  economic 
B)  Fisher effect 
C)  translation 
D)  transaction

Question 9

An outright forward is the single purchase or sale of a currency for future delivery.

Accepted Answer

A) True 
 B)False

Question 10

Assume that RadCo enters into a forward contract. What is the dollar value of the purchases on November 15?

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 11

An option where the holder has the right to sell foreign currency to 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 12

During 2004, the Eurodollar became the most widely traded currency.

Accepted Answer

A) True 
 B)False

Question 13

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.
-The difference between the spot rate on June 1 and the forward rate is a

Accepted Answer

A)  $375 foreign exchange gain 
B)  $375 foreign exchange loss 
C)  $1500 foreign exchange loss 
D)  $1500 foreign exchange gain 
A)  $375 foreign exchange gain 
B)  $375 foreign exchange loss 
C)  $1500 foreign exchange loss 
D)  $1500 foreign exchange gain

Question 14

The economic theory that explains exchange rate movements by looking at the relative prices in one country versus another is

Accepted Answer

A)  purchasing power parity. 
B)  the Fisher Effect. 
C)  the International Fischer Effect. 
D)  the Foreign Exchange Reserves Effect. 
A)  purchasing power parity. 
B)  the Fisher Effect. 
C)  the International Fischer Effect. 
D)  the Foreign Exchange Reserves Effect.

Question 15

Assuming that you entered into the option and the strike price were 154, what would be your net cash proceeds on July 15?

Accepted Answer

A)  $117,000.00 
B)  $114,537.50 
C)  $114,512.50 
D)  $115,500.00 
A)  $117,000.00 
B)  $114,537.50 
C)  $114,512.50 
D)  $115,500.00

Question 16

Foreign exchange gains and losses on foreign currency transactions

Accepted Answer

A)  must be recognized in income in the period in which the rate changes. 
B)  are deferred until the monetary part of the transaction is settled. 
C)  can be used to adjust the cost of the foreign currency transaction under the temporal but not the current rate method. 
D)  can be written off over the life of the debt according to Statement 52, according to the current rate method. 
A)  must be recognized in income in the period in which the rate changes. 
B)  are deferred until the monetary part of the transaction is settled. 
C)  can be used to adjust the cost of the foreign currency transaction under the temporal but not the current rate method. 
D)  can be written off over the life of the debt according to Statement 52, according to the current rate method.

Question 17

The choice of exposures to be hedged depends on

Accepted Answer

A)  the desired return on equity 
B)  the use of options and futures 
C)  the risk aversion of the company 
D)  the international Fisher effect 
A)  the desired return on equity 
B)  the use of options and futures 
C)  the risk aversion of the company 
D)  the international Fisher effect

Question 18

The major market for foreign exchange is

Accepted Answer

A)  the interbank market. 
B)  between banks and their non-bank corporate clients. 
C)  between banks and speculators. 
D)  between foreign exchange brokers and non-bank financial institutions. 
A)  the interbank market. 
B)  between banks and their non-bank corporate clients. 
C)  between banks and speculators. 
D)  between foreign exchange brokers and non-bank financial institutions.

Question 19

Transaction exposure depends on financial statement net asset positions.

Accepted Answer

A) True 
 B)False

Question 20

In the United States, derivatives held for trading or speculative purposes are

Accepted Answer

A)  carried at the original spot rate. 
B)  are deferred and amortized over the useful life of the derivative. 
C)  are marked-to-market. 
D)  and not permitted in the case of foreign currencies. 
A)  carried at the original spot rate. 
B)  are deferred and amortized over the useful life of the derivative. 
C)  are marked-to-market. 
D)  and not permitted in the case of foreign currencies.

An example of an operating hedging strategy is

The institution established to promote exchange rate stability worldwide is the

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

The premium or discount is

Which of the following is true concerning the accounting for a foreign currency option?

An option is considered "in-the-money" if the strike price is unfavorable relative to the market price.

The most widely used exchange rate regime is the

International foreign exchange exposures include all of the following except

An outright forward is the single purchase or sale of a currency for future delivery.

Assume that RadCo enters into a forward contract. What is the dollar value of the purchases on November 15?

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

During 2004, the Eurodollar became the most widely traded currency.

The economic theory that explains exchange rate movements by looking at the relative prices in one country versus another is

Assuming that you entered into the option and the strike price were 154, what would be your net cash proceeds on July 15?

Foreign exchange gains and losses on foreign currency transactions

The choice of exposures to be hedged depends on

The major market for foreign exchange is

Transaction exposure depends on financial statement net asset positions.

In the United States, derivatives held for trading or speculative purposes are

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

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Exam 13: Foreign Exchange Risk Management

An example of an operating hedging strategy is

The institution established to promote exchange rate stability worldwide is the

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

The premium or discount is

Which of the following is true concerning the accounting for a foreign currency option?

An option is considered "in-the-money" if the strike price is unfavorable relative to the market price.

The most widely used exchange rate regime is the

International foreign exchange exposures include all of the following except

An outright forward is the single purchase or sale of a currency for future delivery.

Assume that RadCo enters into a forward contract. What is the dollar value of the purchases on November 15?

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

During 2004, the Eurodollar became the most widely traded currency.

The economic theory that explains exchange rate movements by looking at the relative prices in one country versus another is

Assuming that you entered into the option and the strike price were 154, what would be your net cash proceeds on July 15?

Foreign exchange gains and losses on foreign currency transactions

The choice of exposures to be hedged depends on

The major market for foreign exchange is

Transaction exposure depends on financial statement net asset positions.

In the United States, derivatives held for trading or speculative purposes are

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