Foreign Operations

Question 1

Spot Rate

Answer 1

the exchange rate that is effective on a particular date

Question 2

Foreign Currency Transactions

Answer 2

When an entity enters into a transaction that will be settled through the payment or receipt of foreign currency, it is initially recognized in the functional currency of the entity using the exchange rate in effect on the date of the transaction.

Question 3

Remeasurement

Answer 3

When a transaction occurs in some currency other than the functional currency, it is remeasured as if the transaction had originally occurred at the functional currency.

Question 4

Translation

Answer 4

When the functional currency is not the same as the currency used for reporting, amounts are translated from functional currency into the reporting currency.

Question 5

Translation Currency

Answer 5

Local (“recording currency”) -> the currency of a particular country. Usually books & records are kept.

Question 6

Functional Currency

Answer 6

Greatest economic impact on company. Currency in which entity generates and expends cash)

Question 7

Reporting Currency

Answer 7

Currency in which the enterprise prepares its financial statements ($US)

Question 8

When an entity has financial instruments that are denominated in a foreign currency, they are adjusted for changes in exchange rates as of each balance sheet date as follows:

Answer 8

1) The carrying value of the financial instrument will be remeasured based on the spot rate on the balance sheet date.
2) Any increase or decrease is generally recognized in income or loss as of the foreign currency transaction gain or loss.

Question 9

Forward rate

Answer 9

what the exchange rate is expected to be at some point in the future.