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International Ch 7
Terms in this set (39)
what type of exchange rate mechanism allows the currency value to move freely with little government intervention?
Pegged to another currency
what type of exchange rate mechanism keeps the currency value fixed in terms of a foreign currency and the central bank maintains the exchange rate
How many countries are a part of the european monetary system?
what type of exchange rate quote is given in terms of the US $ equivalent (it takes x amount of dollars to buy 1 unit of foreign currency)
what type of exchange rate quote is given in terms of the foreign currency per US $ (one US $ will buy x amount of foreign currency)
what is today's price for purchasing or selling a foreign currency today?
what is today's price for purchasing or selling a foreign currency for some future date
what occurs when the forward rate is greater than the spot rate?
what occurs when the forward rate is less than the spot rate?
When the interest rate in the foreign country exceeds the interest rate domestically, the foreign currency sells at a ____
when the interest rate in the foreign country is less than the interest rate domestically, the foreign currency sells at a premium
foreign currency option
what gives the owner the right, not the obligation, to trade foreign currency in the future
what type of foreign currency option gives the right to sell the foreign currency
what type of foreign currency option gives the right to buy the foreign currency
what is the exchange rate at which currency will be exchanged when the option is exercised
what is referred to as the cost of purchasing the option and is a function of the option's intrinsic value and time value?
what is the gain that could be realized by immediate exercise of the option?
spot rate - strike price
how do you calculate the intrinsic value of a foreign currency option?
one transaction perspective
what method of accounts for foreign currency transactions treats the sale and collection as one transaction that is complete when foreign currency is received and converted and the sale is measured at the converted amount?
Is the One Transaction method acceptable under US GAAP or IAS?
Two transaction perspective
which method of accounting for foreign currency transactions treats the sale and collection as two separate transactions?
current exchange rate
under the two transaction perspective, what rate is the sale based on?
foreign exchange gain/loss
Under the two transaction perspective, if the exchange rate changes and collection is for a different amount than originally recorded, what is the difference considered to be?
under the __ approach, foreign currency balances must be revalued to their domestic currency equivalent using current exchange rates whenever financial statements are prepared; foreign exchange G/L are recognized in income in the period in which an exchange rate change occurs
In an export sale, __ is exposed and if the foreign currency appreciates there is a foreign exchange ___
In an export sale, __ is exposed and if the foreign currency depreciates there is a foreign exchange ___
In an import sale, __ is exposed and if the foreign currency appreciates there is a foreign exchange ___
In an import sale, __ is exposed and if the foreign currency depreciates there is a foreign exchange ___
what consists of establishing a price today at which a foreign currency receivable (or payable) in the future can be sold (or purchased) in the future
foreign currency forward contract
what type of hedging mechanism consists of the obligation to buy or sell foreign currency at a future date
foreign currency option
what type of hedging mechanism consists of the right but not the obligation to buy or sell foreign currency for a period of time
derivative financial instruments are reported on the balance sheet at their ___
Derivative financial instruments are recorded on the balance sheet as ___ when their fair value is positive and as ___ when negative
the fair value of a ___ is determined by reference to changes in the forward rate over the life of the contract, discounted to present value
foreign currency option
the fair value of a ___ is determined by reference to market price if traded on an exchange, or through the use of a pricing formula if acquired in the over the counter market
used to hedge an exposure, highly effective, and properly documented
under what circumstances is hedge accounting appropriate?
under hedge accounting, gains and losses on the hedging instrument (changes in fair value) are reported in ___ in the same period as gains and losses on the item being hedged
cash flow hedge
what accounting designation for hedges is appropriate when the hedge offsets variability in cash flows with foreign currency receivable or payable
Fair value hedge
what accounting designation for hedges is appropriate when the hedge offsets variability in fair value of hedged assets and liabilities
THIS SET IS OFTEN IN FOLDERS WITH...
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