FAR 6 - Foreign Operations Flashcards
Foreign currency transaction g/l goes to which financial statement?
Income Statement
Foreign currency translation g/l goes to which financial statement?
BALANCE SHEET - OCI (The “T” in “DENT”)
What is functional currency?
The currency in which the entity generates or expends cash. - The currency that has the greatest economic impact on the company
Transactional currency
Local “recording” currency; currency in which books and records are kept
Reporting currency
Currency in which the financial statement are prepared.
Foreign currency re-measurements g/l go to which financial statement?
Income Statement
Spot Rate - definition
Exchange rate on a particular date
Forward Rate - definition
Exchange rate on a particular future date.
What is “remeasurement?
When the functional currency and the local currency are the same.
What is “translation”?
Converting functional currency to reporting currency
What is the difference between a forward exchange contract and a futures contract?
Forward exchange contract specifies you are to pruchase FOREIGN CURRENCY at a specified date and exchange rate. A futures contract specifies you are to purchase a COMMODITY at a specified price and specified future date.
With what three things do a fair value hedge reduces risk?
Recognized asset
Recognized liability
Firm purchase price
With what does cash value hedge reduces risk?
Foretasted transaction expected to take place in the future, but which is not yet a legal commitment.
Why would a company with a variable rate receivable
be interested in a cash flow hedge if interest rates rose?
Variable rate payables increase if the interest rates rise. By entering into a interest rate swap their payments would be the equivalent of fixed payments. This would be a cash flow hedge.
