ADVANCED ACCOUNTING ACTUAL EXAM TEST QUESTIONS
AND ANSWERS SURE A+
✔✔The time value of a foreign currency option ______ as time passes - ✔✔decreases
✔✔The accounting for foreign currency hedges can differ between IFRS and U.S.
GAAP with regard to - ✔✔The recognition of changes in the fair value of forward
contracts used as fair value hedges.
The types of financial instruments allowed to be designated as cash flow hedges.
The timing of recognition of an option's time value as expense in net income.
✔✔When the forward rate for a foreign currency is lower than its spot rate on a given
date the foreign currency is selling at - ✔✔a discount in the forward market
✔✔The number of U.S. dollars needed to purchase one unit of a foreign currency is the
________ quote for that foreign currency. - ✔✔Direct
✔✔When the strike price for a foreign currency option is the same as the spot rate the
foreign currency option is - ✔✔at-the-money
✔✔The fair value of a foreign currency option can be determined by - ✔✔Using an
option price model.
Obtaining a price quote from an option dealer.
✔✔To be highly effective, an option used to hedge a firm commitment to pay a supplier
1,000 euros in 90 days should give the option holder the right to - ✔✔purchase 1,000
euros in 90 days.
✔✔The up-front price a company pays its bank to enter into a foreign currency forward
contract is - ✔✔Zero; there is no up-front cost to enter into a forward contract
✔✔The procedures required by IFRS and U.S. GAAP to account for foreign currency
transactions are - ✔✔essentially the same.
✔✔A company enters into a forward contract to hedge a foreign currency payable. The
company might prefer to designate this as a cash flow hedge rather than a fair value
hedge because - ✔✔A cash flow hedge's impact on net income is more predictable
✔✔When the U.S. dollar direct quote for the Chinese yuan is $0.20 per yuan, the
indirect quote is - ✔✔5 yuan per U.S. dollar
✔✔The value of the euro can best be described as being - ✔✔Allowed to float freely
against other currencies
, ✔✔A note payable denominated in Mexican pesos would act as a natural hedge of -
✔✔An account receivable in Mexican pesos
✔✔When a derivative financial instrument is used for speculation, the change in fair
value of the derivative is - ✔✔Recognized as a gain or loss in net income
✔✔The forward rate for the purchase of foreign currency that will be settled in three
months on October 31 - ✔✔is likely to change between the current date and the future
settlement date
✔✔The original discount (or premium) on a forward contract is determined by the
difference in the forward rate on the date the forward contract is signed and - ✔✔the
spot rate on the date the forward contract is signed
✔✔U.S. GAAP requires the change in fair value of a fair value hedge forward contract
to be recognized in net income. IFRS requires such a change to be recognized in -
✔✔either net income or other comprehensive income
✔✔The exchange rate mechanism for the U.S. dollar can best be described as being -
✔✔allowed to float independently of central bank intervention
✔✔A _________ _______ is the cost of one currency in terms of another -
✔✔exchange rate
✔✔The _____ ______ is the price at which a foreign currency can be purchased or sold
today - ✔✔spot rate
✔✔The ____ _____ is the price available today at which foreign currency can be
purchased or sold in the future. - ✔✔forward rate
✔✔______ _______ indicate the number of domestic currency needed to purchase one
unit of foreign currency - ✔✔direct quotes
✔✔_______ ________indicate the number of foreign currency units that could be
purchased with one unit of domestic currency - ✔✔indirect quotes
✔✔Foreign currency options give the holder of an option ___ _____ ___ ___ ____
_______ to trade foreign currency in the future - ✔✔the right but not the obligation
✔✔_____ options allowfor the sale of foreign currency by the option holder. - ✔✔put
AND ANSWERS SURE A+
✔✔The time value of a foreign currency option ______ as time passes - ✔✔decreases
✔✔The accounting for foreign currency hedges can differ between IFRS and U.S.
GAAP with regard to - ✔✔The recognition of changes in the fair value of forward
contracts used as fair value hedges.
The types of financial instruments allowed to be designated as cash flow hedges.
The timing of recognition of an option's time value as expense in net income.
✔✔When the forward rate for a foreign currency is lower than its spot rate on a given
date the foreign currency is selling at - ✔✔a discount in the forward market
✔✔The number of U.S. dollars needed to purchase one unit of a foreign currency is the
________ quote for that foreign currency. - ✔✔Direct
✔✔When the strike price for a foreign currency option is the same as the spot rate the
foreign currency option is - ✔✔at-the-money
✔✔The fair value of a foreign currency option can be determined by - ✔✔Using an
option price model.
Obtaining a price quote from an option dealer.
✔✔To be highly effective, an option used to hedge a firm commitment to pay a supplier
1,000 euros in 90 days should give the option holder the right to - ✔✔purchase 1,000
euros in 90 days.
✔✔The up-front price a company pays its bank to enter into a foreign currency forward
contract is - ✔✔Zero; there is no up-front cost to enter into a forward contract
✔✔The procedures required by IFRS and U.S. GAAP to account for foreign currency
transactions are - ✔✔essentially the same.
✔✔A company enters into a forward contract to hedge a foreign currency payable. The
company might prefer to designate this as a cash flow hedge rather than a fair value
hedge because - ✔✔A cash flow hedge's impact on net income is more predictable
✔✔When the U.S. dollar direct quote for the Chinese yuan is $0.20 per yuan, the
indirect quote is - ✔✔5 yuan per U.S. dollar
✔✔The value of the euro can best be described as being - ✔✔Allowed to float freely
against other currencies
, ✔✔A note payable denominated in Mexican pesos would act as a natural hedge of -
✔✔An account receivable in Mexican pesos
✔✔When a derivative financial instrument is used for speculation, the change in fair
value of the derivative is - ✔✔Recognized as a gain or loss in net income
✔✔The forward rate for the purchase of foreign currency that will be settled in three
months on October 31 - ✔✔is likely to change between the current date and the future
settlement date
✔✔The original discount (or premium) on a forward contract is determined by the
difference in the forward rate on the date the forward contract is signed and - ✔✔the
spot rate on the date the forward contract is signed
✔✔U.S. GAAP requires the change in fair value of a fair value hedge forward contract
to be recognized in net income. IFRS requires such a change to be recognized in -
✔✔either net income or other comprehensive income
✔✔The exchange rate mechanism for the U.S. dollar can best be described as being -
✔✔allowed to float independently of central bank intervention
✔✔A _________ _______ is the cost of one currency in terms of another -
✔✔exchange rate
✔✔The _____ ______ is the price at which a foreign currency can be purchased or sold
today - ✔✔spot rate
✔✔The ____ _____ is the price available today at which foreign currency can be
purchased or sold in the future. - ✔✔forward rate
✔✔______ _______ indicate the number of domestic currency needed to purchase one
unit of foreign currency - ✔✔direct quotes
✔✔_______ ________indicate the number of foreign currency units that could be
purchased with one unit of domestic currency - ✔✔indirect quotes
✔✔Foreign currency options give the holder of an option ___ _____ ___ ___ ____
_______ to trade foreign currency in the future - ✔✔the right but not the obligation
✔✔_____ options allowfor the sale of foreign currency by the option holder. - ✔✔put
