International Accounting 4E Timothy DoupnikHector Perera Test Bank Chapter 007.docx
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InternationalAccounting4ETimothyDoupnikHectorPereraTestBankChapter007
Chapter07
ForeignCurrencyTransactionsandHedgingForeignExchangeRisk
MultipleChoiceQuestions
1.
AccordingtotheWorldTradeOrganization,whatwasthesizeofinternationaltradein2011?
A.
$7,000,000,000(7billiondollars)
B.
$70,000,000,000(70billiondollars)
C.
$37,000,000,000(37billiondollars)
D.
$18,000,000,000,000(18trilliondollars)
2.
Intheyearsbetween1990and2001whenglobalgrossdomesticproductrose27%,whatwasthegrowthinglobalexports?
A.
25%
B.
75%
C.
35%
D.
50%
3.
Whatisa"foreignexchangerate?
"
A.
Thepricetobuyaforeigncurrency
B.
Thepricetobuyforeigngoods
C.
Thedifferencebetweenthepriceofgoodsinaforeigncurrencyandthepriceinadomesticcurrency
D.
Thecosttoholdallmonetaryassetsinasinglecurrency
4.
WhichofthefollowingstatementsistrueabouttheEuro?
A.
ItisthecurrencyusedbyallcountriesintheEuropeanUnion.
B.
ItispeggedtotheU.S.dollar.
C.
Itisthecurrencyrequiredtobeusedinfinancialreportingunderinternationalaccountingstandards.
D.
Noneofthestatementsaboveistrue.
5.
Abankexchangingforeigncurrencymakesitsprofitinwhatmanner?
A.
Onthedifferencebetweenthespotrateandtheforeignrate
B.
Abankisforbidden,bylaw,tochargeapremiuminforeigncurrencyexchange
C.
Onthepresentvalueoftheforwardratediscountedtothedateanoptionispurchased
D.
Onthedifferencebetweenthebuyingandsellingrates
6.
King'sBank,aBritishcompany,purchasesmarketresearchservicesfromHarrisInteractive,aU.S.company.Asperthetermsofthecontract,paymentistobemadethreemonthslaterinU.S.dollarswhenthereportisdelivered.HowwouldKing'sBankliketoseetheexchangeratemove,assumingitisn'thedgingthetransaction?
A.
IthopesthattheU.S.dollarappreciatesinvalueagainsttheBritishpound.
B.
IthopesthattheBritishpoundappreciatesinvalueagainsttheU.S.dollar.
C.
Itmakesnodifference,sincetheyarethecustomerandthesaletakesplaceintheU.K.
D.
Ithopesthatthereisnochangebetweenthespotrateandtheforwardrate.
7.
Whywasthereverylittlefluctuationintheforeignexchangerateintheperiod1945-1973?
A.
Thiswasaperiodwhentheworldeconomywasverystable.
B.
Therewasverylittlegrowthintheworldeconomybetween1945and1973.
C.
CountrieslinkedtheircurrencytotheU.S.dollar,whichwasbackedbygoldreserves.
D.
MostcurrencieswerepeggedtotheBritishpound,whichcouldbeconvertedtosterlingsilver.
8.
ThecentralbankofCountryXbuysandsellsitsowncurrencytoensurethatthecurrencyisalwaysexchangedinaratioof2:
1withthecurrencyofCountryY.Whatcanweconcludeaboutthesetwocurrencies?
A.
CountryXisusingtheEuro.
B.
CountryXhaspeggeditscurrencytothecurrencyofCountryY.
C.
CountryXhasanundesirablecurrency.
D.
CountryXallowsitscurrencytofloatrelativetothecurrencyofCountryY.
9.
Whenacurrencyisallowedtoincreaseordecreasefreelyaccordingtomarketforces,thecurrencyissaidto:
A.
bepeggedtoanothercurrency.
B.
belessvaluable.
C.
haveindependentfloat.
D.
devalue.
10.
Foranupcomingtrip,PatwantstobuyEurosatthelocalbankwhenthecurrentexchangeratequotedonOANDA.comwas$1.563per€1.WhatshouldPatplantopayfor€1,000?
A.
exactly$1,563
B.
morethan$1,563
C.
about$640
D.
lessthan$640
11.
ThenumberofJapaneseyen(¥)requiredtodaytobuyoneU.S.dollar($)todayiscalled:
A.
thespotrate.
B.
theexactrate.
C.
theforwardrate.
D.
theretailrate.
12.
ThenumberofU.S.dollars($)todaytobuyoneU.K.pound(£)sixmonthsfromnowiscalled:
A.
thespotrate.
B.
theexactrate.
C.
theforwardrate.
D.
theprimerate.
13.
Whatisforeignexchangeriskexposure?
A.
Thepossibilityofalossbecauseofchangesinthevalueofaforeigncurrency
B.
Lossescausedbypayingforpurchasedgoodsinaforeigncurrency
C.
Lossescausedbyreceivingpaymentinaforeigncurrencyforgoodssold
D.
Alloftheabove
14.
Whatis"assetexposure"toforeignexchangerisk?
A.
Thepossibilitythatanassetdenominatedindomesticcurrencywilldeclineinvaluebecauseofchangesintheforeignexchangerate
B.
Thepossibilitythatanassetdenominatedinaforeigncurrencywillchangeinvaluebecauseofachangeintheforeignexchangerate
C.
Thelossresultingfromanimportpurchasewhenaforeigncurrencyappreciates
D.
Thelossresultingfromanimportpurchasewhenaforeigncurrencydepreciates
15.
Whatisaforeigncurrencytransaction?
A.
Itisanothernameforaninternationaltransaction.
B.
Itisatransactionthatinvolvespaymentatadatesometimeinthefuture.
C.
Itisabusinessdealdenominatedinacurrencyotherthanacompany'sdomesticcurrency.
D.
ItisaneconomiceventmeasuredinacurrencyotherthanU.S.dollars.
16.
UnderU.S.GAAP,whatmethodisrequiredtoaccountforforeigncurrencytransactions?
A.
Aone-transactionperspectivemustbeused.
B.
Thetwo-transactionperspectivemustbeused.
C.
AsaleisnotrecordeduntilpaymentisreceivedandconvertedtoU.S.dollars.
D.
Asaleisnotrecordeduntilpaymentisreceivedintheforeigncurrency.
17.
UnderInternationalAccountingStandardsBoardrules,whatmethodisrequiredtoaccountforforeigncurrencytransactions?
A.
Aone-transactionperspectivemustbeused.
B.
Thetwo-transactionperspectivemustbeused.
C.
AsaleisnotrecordeduntilpaymentisreceivedandconvertedtoU.S.dollars.
D.
Asaleisnotrecordeduntilpaymentisreceivedintheforeigncurrency.
18.
Whymustthetwo-transactionperspectivebeusedforrecordingforeigncurrencytransactionsunderU.S.GAAP?
A.
Thetwo-transactionperspectiveisrequiredunderIFRS.
B.
U.S.GAAPrequiresconservatisminfinancialreporting.
C.
Allothermethodsareexcessivelycomplicatedtouseandthereforeobscuretheessenceofthetransaction.
D.
Managementmadetwodecisions:
onetosellandanothertoextendcreditinaforeigncurrency.
19.
UnderU.S.GAAP,foreignexchangelossesshouldberecordedby:
A.
debiting"ForeignExchangeLoss".
B.
crediting"ForeignExchangeLoss".
C.
debiting"RetainedEarnings".
D.
debiting"SalesRevenue".
20.
UnderU.S.GAAP,whatisthepropertreatmentofunrealizedforeignexchangelosses?
A.
TheyshouldbedeferredontheBalanceSheetuntilthecashispaid.
B.
Theyshouldnotberecognizeduntilcashisreceivedtocompletethetransaction.
C.
TheyshouldberecordedontheIncomeStatementintheperiodtheexchangeratechanges.
D.
TheyshouldbedeferredontheBalanceSheetuntilanoffsettingforeignexchangegainisrealized.
21.
UnderU.S.GAAP,whatisthepropertreatmentofunrealizedforeignexchangegains?
A.
TheyshouldbedeferredontheBalanceSheetuntilcashisreceived.
B.
Theprincipleofconservatismrequiresthattheyshouldneverberecognized.
C.
Theyshouldnotberecordeduntilcashisreceivedandtheexchangetransactioniscompleted.
D.
Theyshouldberecognizedinincomeonthedatetheexchangeratechanges.
22.
Whyistheaccrualmethodofaccountingforunrealizedforeignexchangegainssometimescriticized?
A.
Foreignexchangegainsalmostneveroccur,sothereisnoreasontohaveanaccountingstandardforit.
B.
Itviolatestheprincipleofconservatism.
C.
Itisnotobjective.
D.
Thereisnoreliablemethodformeasuringunrealizedforeignexchangegains.
23.
HowshouldU.S.companiesrecordreceivablesandpayablesfrominternationaltradethataredenominatedinforeigncurrencies?
A.
AllassetsandliabilitiesofU.S.companiesmustberecordedinU.S.dollars.
B.
Conservatismwoulddictatethatliabilitiesshouldberecordedinthecurrencyinwhichtheyarepayable,butassetsshouldberecordedinU.S.dollars,regardlessofwhatcurrencywillbereceived.
C.
Thereshouldbeseparatereceivableandpayableaccountsforeachcurrencythatisusedbythecompany.
D.
Thecompanyshouldchooseanyonecurrencytouseforrecordingreceivableandpayablessothatthereisconsistencyintheaccounts.
24.
NorthlandCorporationrecorded£1,000,000inAccountsReceivableforsalestocustomersintheUnitedKingdomandrecordedAccountsPayableof2,000,000YuanforproductpurchasedfromChina.IfNorthlandrecordedaforeigncurrencyexchangelossonitsreceivablesandaforeigncurrencygainonitspayables,whatmusthavehappenedtoeachcurrency?
A.
Yuanappreciated,Pounddepreciated
B.
Yuandepreciated,Poundappreciated
C.
Yuanappreciated,Poundappreciated
D.
Yuandepreciated,Pounddepreciated
25.