Foreign Currency

Question 1

Direct & Indirect Exchange

Answer 1

• $1.24 = 1 euro: Direct states one unit of foreign

- $1 = .806 euro: Indirect states on unit of domestic

Question 2

Spot Rate

Answer 2

Exchange rate at the current date

Question 3

Forward Rate

Answer 3

Exchange rate today for a delivery at a future date

Question 4

Functional Currency

Answer 4

Currency the company primarily generates and expends cash

Question 5

Can a forward contract be used to hedge or speculate

Answer 5

Both

Question 6

Foreign Currency Option Contract

Answer 6

Since its an option to exercise the contract it’s doubtful you’ll end up with a loss

Question 7

Increase and decrease in forward contract for payables

Answer 7

An increase gives you a gain and a decrease gives you a loss

Question 8

To find the net gain or loss in an obligation

Answer 8

Net the gain or loss for forward rate against the spot

Question 9

Speculation for forward contract

Answer 9

Gain or losses soley based on forward rate

Question 10

Conversion using Translation(current rate method)

Answer 10

• when the functional currency is the local currency
• assets & liabilities use spot rate: b/s
• capital uses historical rates: b/s
• retained earnings is computed: b/s
• if items occur evenly through out the year use weighted average: i/s
• if occur on one date use the spot rate: i/s
• part of Comprehensive Income

Question 11

Conversion Using Remeasurement

Answer 11

• when the functional currency does not equal local currency
• monetary assets & liabilities use spot rate: b/s
• nonmonetary assets & liabilities use historical: b/s
• capital uses historical rate: b/s
• retained earnings is computed
• rev and expenses that occur evenly through out the year use weighted average: i/s
• if they occur on one date and or are nonmonetary use historical: i/s
• income from continuing operations

Question 12

Subsidiary as a sales unit

Answer 12

Functional currency is not local currency because sub only sells to parent - remeasurement

Question 13

If monetary assets & liabilities are acquired evenly throughout the year

Answer 13

Use weighted average

Question 14

Monetary Assets

Answer 14

include cash and cash equivalents, such as cash on hand, bank deposits, investment accounts, accounts receivable (AR), and notes receivable, all of which can readily be converted into a fixed or precisely determinable amount of money.

Question 15

Nonmonetary assets

Answer 15

o not have a fixed rate at which the company can convert them into cash. Typical nonmonetary assets of a company include both tangible assets and intangible assets.

Question 16

Monetary Liability

Answer 16

fixed obligation to pay. The amount of this obligation does not depend on the outcome of future events. The amount to be paid is typically stated in a contract, invoice, or employment agreement.

Question 17

Nonmonetary liability

Answer 17

nonmonetary liabilities include obligations that cannot be met in the form of cash payments, such as a warranty service on goods a company sells.