Chapter 9 Exam 3

Approved & Edited by ProProfs Editorial Team
The editorial team at ProProfs Quizzes consists of a select group of subject experts, trivia writers, and quiz masters who have authored over 10,000 quizzes taken by more than 100 million users. This team includes our in-house seasoned quiz moderators and subject matter experts. Our editorial experts, spread across the world, are rigorously trained using our comprehensive guidelines to ensure that you receive the highest quality quizzes.
Learn about Our Editorial Process
| By State
S
State
Community Contributor
Quizzes Created: 11 | Total Attempts: 4,539
Questions: 30 | Attempts: 247

SettingsSettingsSettings
Chapter 9 Exam 3 - Quiz

.


Questions and Answers
  • 1. 

    1.  Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2018.  Pigskin received payment of 35,000 British pounds on May 8, 2018.  The exchange rate was £1 = $1.54 on April 8 and £1 = 1.43 on May 8.  What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar)

    • A.

      A) $10,500 loss

    • B.

      B) $10,500 gain

    • C.

      C) $  1,750 loss

    • D.

      D) $  3,850 loss                

    • E.

      E) No gain or loss should be recognized.

    Correct Answer
    D. D) $  3,850 loss                
    Explanation
                                        $1.43 - $1.54 = ($.11) × £35,000 = ($3,850) Loss

    Rate this question:

  • 2. 

    2- Norton Co., a U.S. corporation, sold inventory on December 1, 2018, with payment of 10,000 British pounds to be received in sixty days.  The pertinent exchange rates were as follows:        For what amount should Sales be credited on December 1?

    • A.

      A) $ 5,500.

    • B.

      B) $16,949.

    • C.

      C) $18,182.

    • D.

      D) $17,241.

    • E.

      E) $16,667.

    Correct Answer
    D. D) $17,241.
    Explanation
                 December 1st Spot Rate $1.7241 × £10,000 = $17,241 Sales Revenue

    Rate this question:

  • 3. 

    3  Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle. A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle.  On June 12, when the parts were received and payment was made, the spot rate was $.28 per stickle.  At what amount should inventory be reported?

    • A.

      A) $         0.

    • B.

      B) $28,000.                               

    • C.

      C) $24,000.

    • D.

      D) $25,000.

    • E.

      E) $   2,000.

    Correct Answer
    B. B) $28,000.                               
    Explanation
     Feedback: $.28 × §100,000 = $28,000

    Rate this question:

  • 4. 

    4-   Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2018, with payment of 10 million Korean won to be received on January 15, 2019.  The following exchange rates applied:         Assuming a forward contract was not entered into, what would be the net impact on Car Corp.'s 2018 income statement related to this transaction?

    • A.

      A) $ 500 (gain).

    • B.

      B) $ 500 (loss).

    • C.

      C) $ 200 (gain).

    • D.

      D) $ 200 (loss).             

    • E.

      E) $ - 0 -

    Correct Answer
    D. D) $ 200 (loss).             
    Explanation
                $.00090 - $.00092 = ($.00002) × $10,000,000 = ($200) Loss

    Rate this question:

  • 5. 

    5-  Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2018, with payment of 10 million Korean won to be received on January 15, 2019.  The following exchange rates applied:

    • A.

      A) $    200.

    • B.

      B) $    295.

    • C.

      C) $    495.                     

    • D.

      D) $    500.

    • E.

      E) $ 9,300.

    Correct Answer
    C. C) $    495.                     
    Explanation
     $.00098 - $.00093 = $.00005 × .9901 × $10,000,000 = $495

    Rate this question:

  • 6. 

    6.  Mills Inc. had a receivable from a foreign customer that is due in the local currency of the customer (stickles).  On December 31, 2018, this receivable for §200,000 was correctly included in Mills' balance sheet at $132,000.  When the receivable was collected on February 15, 2019, the U.S. dollar equivalent was $144,000.  In Mills' 2019 consolidated income statement, how much should have been reported as a foreign exchange gain?

    • A.

      A) $         0.

    • B.

      B) $36,000.

    • C.

      C) $48,000.

    • D.

      D) $10,000.

    • E.

      E) $12,000.                           

    Correct Answer
    E. E) $12,000.                           
    Explanation
       Feedback: $144,000 - $132,000 = $12,000 Gain

    Rate this question:

  • 7. 

    7.  A spot rate may be defined as

    • A.

      A) The price a foreign currency can be purchased or sold today.

    • B.

      B) The price today at which a foreign currency can be purchased or sold in the future.

    • C.

      C) The forecasted future value of a foreign currency.

    • D.

      D) The U.S. dollar value of a foreign currency.

    • E.

      E) The Euro value of a foreign currency.

    Correct Answer
    A. A) The price a foreign currency can be purchased or sold today.
    Explanation
    The correct answer is A) The price a foreign currency can be purchased or sold today. This option accurately defines a spot rate as the current price at which a foreign currency can be bought or sold. It does not refer to future prices or forecasted values, and it is not limited to the U.S. dollar or the Euro.

    Rate this question:

  • 8. 

    8.  The forward rate may be defined as

    • A.

      A) The price a foreign currency can be purchased or sold today.

    • B.

      B) The price today at which a foreign currency can be purchased or sold in the future.

    • C.

      C) The forecasted future value of a foreign currency.

    • D.

      D) The U.S. dollar value of a foreign currency.

    • E.

      E) The Euro value of a foreign currency.

    Correct Answer
    B. B) The price today at which a foreign currency can be purchased or sold in the future.
    Explanation
    The forward rate refers to the price at which a foreign currency can be bought or sold in the future. It is not the current price, but rather the price agreed upon today for a transaction that will take place in the future. This allows individuals and businesses to hedge against potential currency fluctuations by locking in a specific exchange rate for a future transaction.

    Rate this question:

  • 9. 

    9- A U.S. company sells merchandise to a foreign company denominated in U.S. dollars.  Which of the following statements is true?

    • A.

      A) If the foreign currency appreciates, a foreign exchange gain will result.

    • B.

      B) If the foreign currency depreciates, a foreign exchange gain will result.

    • C.

      C) No foreign exchange gain or loss will result.

    • D.

      D) If the foreign currency appreciates, a foreign exchange loss will result. 

    • E.

      E) If the foreign currency depreciates, a foreign exchange loss will result.

    Correct Answer
    C. C) No foreign exchange gain or loss will result.
    Explanation
    If a U.S. company sells merchandise to a foreign company denominated in U.S. dollars, there will be no foreign exchange gain or loss. This is because the transaction is already denominated in U.S. dollars, so any changes in the foreign currency exchange rate will not affect the value of the transaction. The U.S. company will receive the same amount of U.S. dollars regardless of any fluctuations in the foreign currency. Therefore, there will be no gain or loss resulting from foreign exchange.

    Rate this question:

  • 10. 

    10.  A U.S. company buys merchandise from a foreign company denominated in U.S. dollars. Which of the following statements is true? 

    • A.

      A) If the foreign currency appreciates, a foreign exchange gain will result.

    • B.

      B) If the foreign currency depreciates, a foreign exchange gain will result.

    • C.

      C) No foreign exchange gain or loss will result.

    • D.

      D) If the foreign currency appreciates, a foreign exchange loss will result.

    • E.

      E) Any gain or loss will be included in comprehensive income.

    Correct Answer
    C. C) No foreign exchange gain or loss will result.
    Explanation
    When a U.S. company buys merchandise from a foreign company denominated in U.S. dollars, there will be no foreign exchange gain or loss. This is because the transaction is already denominated in U.S. dollars, so any fluctuations in the foreign currency's value will not impact the U.S. company's financials. The U.S. company will not experience any gain or loss due to changes in the exchange rate. Therefore, option C is the correct answer.

    Rate this question:

  • 11. 

    11- U.S. GAAP provides guidance for hedges of all the following sources of foreign exchange risk except

    • A.

      A) Recognized foreign currency denominated assets and liabilities.

    • B.

      B) Unrecognized foreign currency firm commitments.

    • C.

      C) Forecasted foreign currency denominated transactions.

    • D.

      D) Net investment in foreign operations.

    • E.

      E) Deferred foreign currency gains and losses.

    Correct Answer
    E. E) Deferred foreign currency gains and losses.
    Explanation
    U.S. GAAP provides guidance for hedges of recognized foreign currency denominated assets and liabilities, unrecognized foreign currency firm commitments, forecasted foreign currency denominated transactions, and net investment in foreign operations. However, it does not provide guidance for hedges of deferred foreign currency gains and losses.

    Rate this question:

  • 12. 

    12.  A forward contract may be used for which of the following? 1) A fair value hedge of an asset. 2) A cash flow hedge of an asset. 3) A fair value hedge of a liability. 4) A cash flow hedge of a liability.

    • A.

      A) 1 and 3

    • B.

      B) 2 and 4

    • C.

      C) 1 and 2

    • D.

      D) 1, 3, and 4

    • E.

      E) 1, 2, 3, and 4

    Correct Answer
    E. E) 1, 2, 3, and 4
    Explanation
    A forward contract can be used for all of the options provided. It can be used for a fair value hedge of an asset, where the contract is used to offset changes in the fair value of the asset. It can also be used for a cash flow hedge of an asset, where the contract is used to offset changes in cash flows related to the asset. Similarly, it can be used for a fair value hedge of a liability, where the contract is used to offset changes in the fair value of the liability. And finally, it can be used for a cash flow hedge of a liability, where the contract is used to offset changes in cash flows related to the liability. Therefore, the correct answer is E) 1, 2, 3, and 4.

    Rate this question:

  • 13. 

    13.  A company has a discount on a forward contract for a foreign currency denominated asset.  How is the discount recognized over the life of the contract under fair value hedge accounting?

    • A.

      A) As a debit to discount expense.

    • B.

      B) As a debit to amortization expense.

    • C.

      C) As a debit to accumulated other comprehensive income.

    • D.

      D) As a debit impact on net income, as a result of the hedge.

    • E.

      E) As a decreases to sales.

    Correct Answer
    D. D) As a debit impact on net income, as a result of the hedge.
    Explanation
    The correct answer is D) As a debit impact on net income, as a result of the hedge. In fair value hedge accounting, any changes in the fair value of the hedging instrument are recognized in net income. Since the discount on the forward contract is part of the fair value of the hedging instrument, it will be recognized as a debit impact on net income over the life of the contract.

    Rate this question:

  • 14. 

    14.  All of the following hedges are used for future purchase/sale transactions except

    • A.

      A) Forward contracts used as a fair value hedge of a firm commitment.

    • B.

      B) Options used as a fair value hedge of a firm commitment.

    • C.

      C) Option contract cash flow hedge of a forecasted transaction.

    • D.

      D) Forward contract cash flow hedges of a forecasted transaction.

    • E.

      E) Forward contracts used to hedge a foreign currency denominated liability.

    Correct Answer
    E. E) Forward contracts used to hedge a foreign currency denominated liability.
    Explanation
    The correct answer is E) Forward contracts used to hedge a foreign currency denominated liability. This is because forward contracts are commonly used to hedge foreign currency exposure, including future purchase or sale transactions. Therefore, this answer is incorrect as it contradicts the statement in the question.

    Rate this question:

  • 15. 

    15-   On December 1, 2018, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD).  Collection of the receivable is due on February 1, 2019.  Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2018.  This foreign currency option is designated as a cash flow hedge.  Relevant exchange rates follow: Date Spot Rate Option Premium December 1, 2018 $ .97 $ .05 December 31, 2018 $ .95 $ .04 February 1, 2019 $ .94 $ .03              Compute the fair value of the foreign currency option at December 1, 2018.

    • A.

      A) $6,000.

    • B.

      B) $4,500.

    • C.

      C) $3,000.

    • D.

      D) $7,500.       

    • E.

      E) $1,500.

    Correct Answer
    D. D) $7,500.       
    Explanation
     Feedback: $.05 × C$150,000 = $7,500

    Rate this question:

  • 16. 

    16- On December 1, 2018, Keenan Company, a U.S. firm, sold merchandise to Velez Company of Canada for 150,000 Canadian dollars (CAD).  Collection of the receivable is due on February 1, 2019.  Keenan purchased a foreign currency put option with a strike price of $.97 (U.S.) on December 1, 2018.  This foreign currency option is designated as a cash flow hedge.  Relevant exchange rates follow: Date Spot Rate Option Premium December 1, 2018 $ .97 $ .05 December 31, 2018 $ .95 $ .04 February 1, 2019 $ .94 $ .03       Compute the U.S. dollars received on February 1, 2019.

    • A.

      A) $138,000.

    • B.

      B) $136,500.

    • C.

      C) $145,500.             

    • D.

      D) $141,000

    • E.

      E) $142,500.

    Correct Answer
    C. C) $145,500.             
    Explanation
    Feedback: Strike Price $.97 × C$150,000 = $145,500

    Rate this question:

  • 17. 

    17- Which of the following approaches is used in the United States in accounting for foreign currency transactions?

    • A.

      A) One-transaction perspective; defer foreign exchange gains and losses.

    • B.

      B) Two-transaction perspective; accrue foreign exchange gains and losses.

    • C.

      C) Three-transaction perspective; defer foreign exchange gains and losses.

    • D.

      D) One-transaction perspective; accrue foreign exchange gains and losses.

    • E.

      E) Two-transaction perspective; defer foreign exchange gains and losses.

    Correct Answer
    B. B) Two-transaction perspective; accrue foreign exchange gains and losses.
    Explanation
    The correct answer is B) Two-transaction perspective; accrue foreign exchange gains and losses. This approach is used in the United States in accounting for foreign currency transactions. Under this approach, foreign exchange gains and losses are recognized as they occur, and are recorded in the financial statements in the period in which they arise. This approach provides a more accurate reflection of the impact of foreign currency fluctuations on the financial position and performance of the company.

    Rate this question:

  • 18. 

    18. When a U.S. company purchases parts from a foreign company, which of the following will result in zero foreign exchange gain or loss?

    • A.

      A) The transaction is denominated in U.S. dollars.

    • B.

      B) The option strike price to sell foreign currency is less than the spot rate of the currency.

    • C.

      C) The option strike price to buy foreign currency is less than the spot rate of the currency.

    • D.

      D) The foreign currency appreciated in value relative to the U.S. dollar.

    • E.

      E) The foreign currency depreciated in value relative to the U.S. dollar.

    Correct Answer
    A. A) The transaction is denominated in U.S. dollars.
    Explanation
    When a U.S. company purchases parts from a foreign company and the transaction is denominated in U.S. dollars, there will be zero foreign exchange gain or loss. This is because when the transaction is in U.S. dollars, there is no need for currency conversion, and therefore no exchange rate fluctuations that could result in a gain or loss. The U.S. company will pay the exact amount in U.S. dollars for the parts, regardless of any changes in the value of the foreign currency.

    Rate this question:

  • 19. 

    19. Alpha, Inc., a U.S. company, had a receivable from a customer that was denominated in Mexican pesos.  On December 31, 2017, this receivable for 75,000 pesos was correctly included in Alpha’s balance sheet at $8,000.  The receivable was collected on March 2, 2018, when the U.S. equivalent was $6,900.  How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31, 2018?

    • A.

      A) $1,100 loss.                                

    • B.

      B) $1,100 gain.

    • C.

      C) $6,900 loss.

    • D.

      D) $6,900 gain.

    • E.

      E) $8,000 gain.

    Correct Answer
    A. A) $1,100 loss.                                
    Explanation
       Feedback: $6,900 - $8,000 = ($1,100) Loss

    Rate this question:

  • 20. 

    20. Angela, Inc., a U.S. company, had a euro receivable from exports to Spain and a British pound payable resulting from imports from England.  Angela recorded foreign exchange gain related to both its euro receivable and pound payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date?

    • A.

      Option 1

    • B.

      Option 2

    • C.

      Option 3

    • D.

      Option 4

    Correct Answer
    B. Option 2
    Explanation
    The foreign currencies decreased in dollar value from the date of the transaction to the settlement date.

    Rate this question:

  • 21. 

    21-  Parker Corp., a U.S. company, had the following foreign currency transactions during 2018:       What amount should be included as a foreign exchange gain or loss from the two transactions for 2018?

    • A.

      A) $  2,000 loss.

    • B.

      B) $  2,000 gain.

    • C.

      C) $10,000 gain.

    • D.

      D) $14,000 loss.

    • E.

      E) $ 14,000 gain.

    Correct Answer
    C. C) $10,000 gain.
    Explanation
    Feedback: [$80,000 - $82,000 = ($2,000) Loss] + [$872,000 - $860,000 = $12,000 Gain] = $10,000 Gain

    Rate this question:

  • 22. 

    22-  Williams, Inc., a U.S. company, has a Japanese yen account receivable resulting from an export sale on March 1 to a customer in Japan.  The exporter signed a forward contract on March 1 to sell yen and designated it as a cash flow hedge of a recognized receivable.  The spot rate was $.0094, and the forward rate was $.0095.  Which of the following did the U.S. exporter report in net income?

    • A.

      A) Discount revenue.

    • B.

      B) Premium revenue.

    • C.

      C) Discount expense.

    • D.

      D) Premium expense.

    • E.

      E) Both discount revenue and premium expense.

    Correct Answer
    B. B) Premium revenue.
    Explanation
    The U.S. exporter reported premium revenue in net income because they signed a forward contract to sell yen at a higher forward rate than the spot rate. This means that they received a premium for entering into the contract, which is recognized as revenue in their financial statements.

    Rate this question:

  • 23. 

    23. Primo Inc., a U.S. company, ordered parts costing 100,000 rupee from a foreign supplier on July 7 when the spot rate was $.025 per rupee.  A one-month forward contract was signed on that date to purchase 100,000 rupee at a rate of $.027.  The forward contract is properly designated as a fair value hedge of the 100,000 rupee firm commitment.  On August 7, when the parts are received, the spot rate is $.028.  At what amount should the payable be carried on Primo’s books?

    • A.

      A) $2,000.       

    • B.

      B) $2,100.

    • C.

      C) $2,500.

    • D.

      D) $2,700.

    • E.

      E) $2,800.                         

    Correct Answer
    E. E) $2,800.                         
    Explanation
    Feedback: $.028 × ₹100,000 = $2,800

    Rate this question:

  • 24. 

    24 . Lawrence Company, a U.S. company, ordered parts costing 1,000,000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $.025 per baht.  A one-month forward contract was signed on that date to purchase 1,000,000 bahts at a rate of $.027.  The forward contract is properly designated as a fair value hedge of the 1,000,000 baht firm commitment.  On August 7, when the parts are received, the spot rate is $.028.  What is the amount of accounts payable that will be paid at this date?

    • A.

      A) $20,000.

    • B.

      B) $20,100.

    • C.

      C) $25,000.

    • D.

      D) $27,000.

    • E.

                   E) $28,000.                             

    Correct Answer
    E.              E) $28,000.                             
    Explanation
      Feedback: $.028 × ฿1,000,000 = $28,000

    Rate this question:

  • 25. 

    25-  Woolsey Corporation, a U.S. company, expects to sell goods to a British customer at a price of 250,000 pounds, with delivery and payment to be made on October 24, 2018.  On July 24, 2018, Woolsey purchased a three-month put option for 250,000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction expected to be completed in late October, 2018.  The following exchange rates apply: Option strike price $2.17 Option cost $4,000 July 24 spot rate $2.17 October 24 spot rate $2.13 October 24 option premium $  .04    What amount will Woolsey include as an option expense in net income for the period July 24 to October 24?

    • A.

      A) $  4,000.                         

    • B.

      B) $  5,000.

    • C.

      C) $10,000.

    • D.

      D) $12,000.

    • E.

      E) $14,000.

    Correct Answer
    A. A) $  4,000.                         
    Explanation
    Feedback: Cost of the Option Contract $4,000

    Rate this question:

  • 26. 

    26-  On March 1, 2018, Mattie Company received an order to sell a machine to a customer in England at a price of 200,000 British pounds.  The machine was shipped and payment was received on March 1, 2019.  On March 1, 2018, Mattie purchased a put option giving it the right to sell 200,000 British pounds on March 1, 2019 at a price of $380,000.  Mattie properly designates the option as a fair hedge of the pound firm commitment.  The option cost $2,000 and had a fair value of $2,200 on December 31, 2018.  The following spot exchange rates apply: Date Spot Rate March 1, 2018 $1.90 December 31, 2018 $1.89 March 1, 2019 $1.84        Mattie’s incremental borrowing rate is 12 percent, and the present value factor for two months at a 12 percent annual rate is .9803.    What was the net impact on Mattie’s 2018 income as a result of this fair value hedge of a firm commitment?

    • A.

      A) $1,800.00 decrease.

    • B.

      B) $1,760.60 decrease.

    • C.

      C) $2,240.40 decrease.

    • D.

      D) $1,660.40 increase.

    • E.

      E) $2,240.60 increase.

    Correct Answer
    B. B) $1,760.60 decrease.
    Explanation
    Feedback: $1.89 - $1.90 = ($.001) × £200,000 = ($2,000) × .9803 = ($1,960.60) Loss on Firm Commitment
    $2,200 - $2,000 = $200 Option Value Increase
    ($1,960.60) Loss on Firm Commitment + $200 Option Value Increase = ($1,760.60) Reduction in 2018 Net Income

    Rate this question:

  • 27. 

    27- On October 1, 2018, Eagle Company forecasts the purchase of inventory from a British supplier on February 1, 2019, at a price of 100,000 British pounds.  On October 1, 2018, Eagle pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound.  The option is considered to be a cash flow hedge of a forecasted foreign currency transaction.  On December 31, 2018, the option has a fair value of $1,600.  The following spot exchange rates apply: Date Spot Rate October 1, 2018 $2.00 December 31, 2018 $1.97 February 1, 2019 $2.01               What journal entry should Eagle prepare on October 1, 2018?

    • A.

      A) Cash 1,800          Foreign Currency Option   1,800

    • B.

      B) Forward Contract 1,800          Cash   1,800

    • C.

      C) Foreign Currency Option 1,800          Gain on Foreign Currency   1,800

    • D.

      D) Loss on Foreign Currency 1,800          Cash   1,800

    • E.

      E) Foreign Currency Option 1,800          Cash   1,800

    Correct Answer
    E. E) Foreign Currency Option 1,800          Cash   1,800
    Explanation
    On October 1, 2018, Eagle Company pays $1,800 for a three-month call option on 100,000 pounds with a strike price of $2.00 per pound. This option is considered a cash flow hedge of a forecasted foreign currency transaction. The journal entry on October 1, 2018, should reflect the payment for the option. The option is an asset, so it should be debited for $1,800. Cash is being used to pay for the option, so it should be credited for the same amount. Therefore, the correct journal entry is E) Foreign Currency Option 1,800 and Cash 1,800.

    Rate this question:

  • 28. 

    28. Which is a true statement regarding the fundamental requirement of accounting for derivatives?

    • A.

      A) Derivatives are reported on the balance sheet only as an asset.

    • B.

      B) Derivatives are reported on the balance sheet only as a liability.

    • C.

      C) Changes in derivative cost basis are recorded in the asset value.

    • D.

      D) Changes in derivative fair value are included in comprehensive income.

    • E.

      E) Changes in derivative cost basis are recorded in the liability value.

    Correct Answer
    D. D) Changes in derivative fair value are included in comprehensive income.
    Explanation
    The correct answer is D) Changes in derivative fair value are included in comprehensive income. This means that any changes in the fair value of derivatives are recognized in the comprehensive income statement. This is in accordance with the accounting principle of fair value accounting, which requires that financial instruments, including derivatives, be measured at their fair value. By including changes in fair value in comprehensive income, the financial statements provide a more accurate representation of the company's financial position and performance.

    Rate this question:

  • 29. 

    29. Authoritative literature provides guidance for hedges of the following sources of foreign exchange risk.                          I. Recognized foreign currency denominated assets and liabilities.                         II. Unrecognized foreign currency firm commitments.                         III. Forecasted foreign currency denominated transactions.

    • A.

      A) I only

    • B.

      B) I and II

    • C.

      C) II only

    • D.

      D) II and III

    • E.

      E) I, II, and III

    Correct Answer
    E. E) I, II, and III
    Explanation
    Authoritative literature provides guidance for hedges of recognized foreign currency denominated assets and liabilities, as well as unrecognized foreign currency firm commitments and forecasted foreign currency denominated transactions. This means that the literature provides guidance on how to manage and mitigate the risks associated with these different sources of foreign exchange risk. Therefore, the correct answer is E) I, II, and III.

    Rate this question:

  • 30. 

    30. For speculative derivatives, the change in the fair value of the derivative must be:

    • A.

      A) Utilized to adjust the derivative asset.

    • B.

      B) Recognized immediately as a gain or loss in net income.

    • C.

      C) Recognized as a loss in other comprehensive income.

    • D.

      D) Recognized as a gain in other comprehensive income.

    • E.

      E) Recognized as a gain or loss in net income at a later date.

    Correct Answer
    B. B) Recognized immediately as a gain or loss in net income.
    Explanation
    Speculative derivatives are financial instruments that are used for speculative purposes rather than for hedging or investment purposes. When the fair value of a speculative derivative changes, it is recognized immediately as a gain or loss in net income. This means that any increase or decrease in the fair value of the derivative will directly impact the company's net income in the current period. This treatment reflects the speculative nature of these derivatives and ensures that their impact on the company's financial performance is immediately recognized.

    Rate this question:

Quiz Review Timeline +

Our quizzes are rigorously reviewed, monitored and continuously updated by our expert board to maintain accuracy, relevance, and timeliness.

  • Current Version
  • Mar 20, 2023
    Quiz Edited by
    ProProfs Editorial Team
  • Jul 01, 2019
    Quiz Created by
    State
Back to Top Back to top
Advertisement