Exam 15: Global Business and Accounting

Listed below are nine global business terms introduced in this chapter: Each of the following statements may (or may not) describe one of these terms. In the space provided below each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms. a. The strategy of creating offsetting positions so that losses from currency fluctuations will be offset by gains resulting from the same fluctuations.______________________________ b. Selling a good or service to a foreign customer.______________________________ c. Government allocates resources and determines output through central planning.______________________________ d. The organization responsible for developing uniform worldwide accounting standards.______________________________ e. Distinguishes between illegal influence peddling and legal facilitating payments.______________________________ f. A cross-border contractual agreement allowing one company to use trademarks, patents, or technology of another company.______________________________ g. The impact on the value of a company of unexpected fluctuations in the exchange rate.______________________________

Trente Switch and Signal sold equipment to a Canadian transportation company at a price of 300,000 Canadian dollars with payment due in 60 days. On the date of sale, the exchange rate was 1.50 Canadian dollars per U.S. dollar. Trente decided to hedge the risk of currency fluctuations by purchasing 300,000 Canadian dollars with payment due in 60 days. If the exchange rate in 60 days is 1.25 Canadian dollars per U.S. dollar, Trente Switch and Signal will:

An international joint venture is a company owned by two or more companies from different countries.

One of the most important requirements of the Foreign Corrupt Practices Act is the maintenance of an adequate system of international reporting.

If the exchange rate for a foreign currency (stated in dollars) has risen, a dollar will purchase:

Which of the following does not affect the cost associated with producing and selling goods and services in global markets?

Which of the following organizations is responsible for developing uniform worldwide accounting standards?

Having a liability that is fixed in terms of a foreign currency results in a loss for the debtor if the exchange rate falls between the transaction date and the payment date.

An international joint venture involves the creation of a new company that is owned by two or more firms from different countries.

China, Japan, and Australia have amended their current standards to converge with International Financial Reporting Standards, but the United States has chosen not to adopt the International Financial Reporting Standards.

Hedging refers to the strategy of taking offsetting positions so that gains in one currency offset losses in another currency.

Multicountry tax laws do not affect the cost of doing business in global markets.

Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.

The standards issued by the International Accounting Standards Board must be followed by all multinational companies.

The following table summarizes the facts of five independent cases (labeled a through e) of American companies engaging in credit transactions with foreign corporations while the foreign exchange rate is fluctuating: Instructions After evaluating the information about each case, fill the blank space that has been left in one of the four columns denoted by a yellow color. The content of each column and the word or words that you should enter in the blank spaces are described below: Column 1 indicates the type of credit transaction in which the American company engaged with the foreign corporations. The answer entered in this column should be either "Sales" or "Purchases." Column 2 indicates the currency in which the invoice price is stated. The answer may be either "U.S. dollars" or "Foreign currency." Column 3 indicates the direction in which the foreign currency exchange rate has moved between the date of the credit transaction and the date of settlement. The answer in this column may be either "Rising" or "Falling." Column 4 indicates the effect of the exchange rate fluctuation upon the income of the American company. The answers entered in this column are to be selected from the following: "Gain," "Loss," or "No effect."