11/19 Chapter 11

Question 1

hedging

Answer 1

where we offset variable rates of debt by hedging at a certain percentage

Question 2

foreign currency transactions

Answer 2

of a US company denominated in other currencies must be restated to their US dollar equivalents before they can be recorded in our books

Question 3

functional currency

Answer 3

primarily used currency, we have to translate foreign currency, currency rate fluctuate

Question 4

determination of exchange rates

Answer 4

factors causing change
 level of inflation
 balance of payments - $ coming in vs out
 changes in a country's interest rate
 investment levels
 stability and process of governance

Question 5

direct vs indirect

Answer 5

we won’t be tested on it, it is an inverse of another

Question 6

direct

Answer 6

stated in dollars in numberator
US dollar/1FCU
direct is an american ter

Question 7

Indirect

Answer 7

the inverse of direct
1FCU/US dollar
indirect is a european term

Question 8

dollar is strengthened

Answer 8

variable rate is lower

Question 9

dollar is weakened

Answer 9

variable rate increases

Question 10

look at chart in book to see the indirect and direct exchange rates

Answer 10

look at it in ch 11 pg 549

Question 11

spot rate

Answer 11

the exchange rate for immediate delivery of currencies

Question 12

current rate

Answer 12

the spot rate on the entity’s balance sheet date, we need to use this rate for historical cost

Question 13

sales spot rate

Answer 13

you would use the average spot rate to determine sales rates from foreign currencies

Question 14

forward exchange rates

Answer 14

based on expectations of what will happen in the future

Question 15

spread

Answer 15

the difference between the forward rate and the spot rate on a given date

Question 16

Other Comprehensive Income

Answer 16

includes cash flow hedges

Question 17

entry to record the exchange of currencies

Answer 17

rate 1.2
foreign currency units 6000
cash 6000
on july 2 the exchange rate changes to 1.1
foreign currency transaction loss 500
foreign currency units 500

Question 18

hmmmm

Answer 18

transaction

obligation - we have to mark it to market

Question 19

transaction date

Answer 19

record the purchase using the spot direct exchange rate on this date

Question 20

balance sheet date

Answer 20

adjust the payable or receivable to its US dollar equivalent, end of period value uses current DER

Question 21

pg 550

Answer 21

exchange rate chart pg 550

Question 22

hedging account laws

Answer 22

133 defined derivatives
138 amended it
149 clarified issues

Question 23

financial instrument

Answer 23

cash, evidence of ownership, or a contract that both
1 imposes on one entity a contractual obligation to deliver cash or another instrument
2. conveys to the second entity that contractual right to receive cash or another financial instrument

Question 24

derivative

Answer 24

a financial instrument or other contract whose value is derived from some other item that has a variable value over time

Question 25

derivative characteristics

Answer 25

require or permit net settlement provide for the delivery of an asset that puts the recipient in an economic position not substantially different from net settlement allow for the contract o be readily settled net by a market or other mechanism outside the contract

Question 26

qualifications for a derivative to qualify as a hedging instrument

Answer 26

1. sufficient documentation must be provided at the beginning of the hedge term to identify the objective and strategy of the hedge, the hedginn

Question 27

Fair Value hedge

Answer 27

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Question 28

measuring effectiveness

Answer 28

intrinsic value and time value