Forex

Question 1

What IAS standard are FOREIGN EXCHANGE TRANSACTIOINS?

Answer 1

IAS 21

Question 2

How do companies carry on foreign activities?

Answer 2

Either:

1) Transactions concluded in currencies other than
own currency (Rands) E.G. Importing/exporting.
2) Foreign operations (E.G. Subsidiary, JV, Associate,
Branch)

Question 3

Can SA companies present their AFS in a foreign currency?

Answer 3

SA companies can present their AFS in a foreign currency, if they decides to do so.

Question 4

What is an Exchange rate?

Answer 4

Exchange rate is a ratio of exchange between 2 currencies i.e. describes how many units of one currency you would swap per unit of another currency.

Question 5

What is a direct quote of a currency?

Answer 5

mount of domestic currency per
foreign currency unit i.e. DC/FC e.g. R14/$

Question 6

What is an indirect quote of a currency?

Answer 6

amount of foreign currency per
domestic currency unit i.e. FC/DC e.g. $0,714/R

Question 7

What happens in a Spot market?

Answer 7

currencies trade for immediate delivery.

Question 8

What is a spot rate?

Answer 8

the spot rate is the exchange rate at which currencies will trade on that day

Question 9

what happens in a Forward market?

Answer 9

contracts are entered into to buy or sell currencies for future delivery.

Question 10

What is a forward rate?

Answer 10

forward rate is exchange rate contracted to transact at in the future (Forward Exchange
Contracts - FECs)

Question 11

What is a functional currency?

Answer 11

It is a Currency of primary economic
environment in which the entity operates

Question 12

What is a foreign curency?

Answer 12

currency other than
functional currency

Question 13

“It is important for every South African company to determine its functional currency because that will
also determine its reporting currency”. You are required to indicate, with reasons, whether or not (or to what extent) you agree with the
statement

Answer 13

It is not important that every South African company determines its functional currency. Determining the functional currency is important only for those companies involved in foreign currency transactions . The importance of determining a company’s functional currency is not to
determine its reporting currency, but to distinguish between the functional currency and foreign
currency to which the guidelines in IAS 21 apply. Most South African companies have the Rand as
both their functional currency and reporting currency. IAS 21 allows South African companies to
choose a reporting currency other than the Rand