Question 1. The best definition for direct quotes woul

29 Jun Question 1. The best definition for direct quotes woul

Question
1. The best definition for direct quotes would be “direct quotes measure

a. how much foreign currency must be exchanged to receive 1 domestic currency.”

b. current or spot rates.”

c. how much domestic currency must be exchanged to receive 1 foreign currency.”

d. exchange rates at a future point in time.”

2. A U.S. company purchases medical lab equipment from a Japanese company. The Japanese company requires payment in Japanese yen. In this transaction, the yen would be referred to as the

a. domestic currency for the U.S. company.

b. denominated currency.

c. purchasing currency.

d. selling currency.

3. A U.S. company that has purchased inventory from a German vendor would be exposed to a net exchange gain on the unpaid balance if the

a. amount to be paid was denominated in dollars.

b. dollar weakened relative to the Euro and the Euro was the denominated currency.

c. dollar strengthened relative to the Euro and the Euro was the denominated currency.

d. U.S. company purchased a forward contract to buy Euros.

4. A U.S. company that has sold its product to a German firm would be exposed to a net exchange gain on the unpaid receivable if the

a. amount to be paid was denominated in dollars.

b. dollar weakened relative to the Euro and the Euro was the denominated currency.

c. dollar strengthened relative to the Euro and the Euro was the denominated currency.

d. U.S. company purchased a forward contract to buy Euros.

5. A bank dealing in foreign currency tells you that the foreign currency will buy you $.80 US dollars. The bank has given you

a. a direct quote.

b. an indirect quote.

c. the official (fixed) rate.

d. a forward rate.

Chapter 10

6. When an economic transaction is denominated in a currency other than the entity’s domestic currency, the entity must establish a

a. domestic rate.

b. hedge rate.

c. rate of currency change.

d. rate of exchange.

7. A forward exchange contract is being transacted at a premium if the current forward rate is

a. less than the expected spot rate.

b. greater than the expected spot rate.

c. less than the current spot rate.

d. greater than the current spot rate.

8. Which of the following factors influences the spread between forward and spot rates?

a. which currency is denominated as the domestic currency

b. the length of the forward exchange contract

c. the current cross rate between the two currencies

d. all are factors that may influence the spread

9. Foreign currency transactions not involving a hedge should be accounted for using

a. the one-transaction method.

b. the two-transaction method.

c. a hybrid of the one- and two-transaction methods.

d. either the one- or the two-transaction method (allowed by the FASB).

10. A transaction denominated in a foreign currency will most likely result in gains and losses to the reporting entity if the

a. forward exchange contract is selling at a premium.

b. transaction is denominated and measured in the reporting entity’s currency.

c. transaction takes place in a country with a tiered monetary system.

d. transaction is denominated in a foreign currency and measured in the reporting entity’s currency.