Foreign Currency Denominated Transactions

Question 1

A foreign currency transaction is a transaction of a domestic entity denominated in a foreign currency, but to be recorded on the domestic entity’s books in the _____ _____.

Answer 1

Domestic currency

Question 2

A foreign currency translation is when financial statements are denominated in a _____ ______ but to be reported in the FS expressed in the domestic currency.

Answer 2

Foreign currency (1 Euro = $1.24)

Question 3

The direct exchange rate measues how much domestic currenct must be exchanged to recieve one unit of foreign currency. TF

Answer 3

True ($1 = .846 Euro)

Question 4

An ____ ____ measures how may units of foreign currency may be purchased with one unit of domestic currency.

Answer 4

Indirect rate

Question 5

A spot rate is….

Answer 5

the exchange rate on the current date.

Question 6

A forward rate is…

Answer 6

the exchange rate now for delivery at a future date

Question 7

Functional currency is the currency of the primary economic environment. TF

Answer 7

True

Question 8

If the domestic currency strenghtens, AP in the foreign currency would result in an exchange loss or an exchange gain?

Answer 8

Exchange gain

Question 9

If the domestic currency strenghtens, AR in the foreign currency would result in an exchange loss or an exchange gain?

Answer 9

Exchange loss

Question 10

In the period in which the exchange rate changes, an adjustment to the account balance (AR or AP) as a gain or a loss is recorded. TF

Answer 10

True

Question 11

Exchange gains and losses are recorded in current period income as extraordinary events. TF

Answer 11

False, income from continuing operations

Question 12

Gains and losses are contrasted by the spot rate at the time of the transaction against the spot rate at the balance sheet date. TF

Answer 12

True

Question 13

Import transactions result in reciveables, export transactions result in payables. TF

Answer 13

False, vice versa