Week 8

Question 1

What is a direct quotation?

Answer 1

Price 1 Unit foreign currency expressed in terms of the domestic currency.

1 Foreign = X Domestic

Question 2

What is indirect quotation?

Answer 2

Price 1 Unit Domestic currency expressed in terms of the foreign currency.

1 Domestic = X Foreign

Question 3

How do you calculate foreign exchange loss?

Answer 3

(Balance x Spot Rate) - (Balance x Close Rate)

Question 4

What is a qualifying asset?

Answer 4

An asset that takes a substantial period (12 Months) to get ready for use/sale

Question 5

How do we treat qualifying assets?

Answer 5

Direct costs (Acquisition, Production, Construction) Capitalised

Other borrowing costs expensed

Question 6

What is a hedging transaction?

Answer 6

Action taken to avoid adverse movements in exchange rates

Question 7

What is a FV hedge?

Answer 7

For recognized A/L

Question 8

What is a CF hedge?

Answer 8

Variability on CFs
A component of recognizable A/L
A highly profitable forecast transaction

Question 9

What are the 3 components to qualify for hedge accounting?

Answer 9

1) Only hedged item and hedging instrument
2) Formal documentation of hedging relationship1
3) Meets specific hedge effectiveness requirements