Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange RiskForeign Currency Transactions and Hedging Foreign Exchange Risk Multiple Choice [QUESTION] 1. Pigskin Co., a U.S. corporation, sold inventory on credit to a British company on April 8, 2008. Pigskin received payment of 35,000 British pounds on May 8, 2008. The exchange rate was $1 = £0.65 on April 8 and $1 = £0.70 on May 8. What amount of foreign exchange gain or loss should be recognized? (round to the nearest dollar) A) $10,500 loss B) $10,500 gain C) $1,750 loss D) $3,846 loss E) No gain or loss should be recognized. Answer: D Difficulty: Medium REFERENCE: Ref. 09_01 Norton Co., a U.S. corporation, sold inventory on December 1, 2008, with payment of 10,000 British pounds to be received in sixty days. The pertinent exchange rates were as follows: [QUESTION] REFER TO: Ref. 09_01 2. For what amount should Sales be credited on December 1? A) $5,500. B) $16,949. C) $18,182. D) $17,241. E) $16,667. Answer: D Difficulty: Medium [QUESTION] REFER TO: Ref. 09_01 3. What amount of foreign exchange gain or loss should be recorded on December 31? A) $300 gain. B) $300 loss. C) $0. D) $941 loss. E) $941 gain. Answer: E Difficulty: Medium [QUESTION] REFER TO: Ref. 09_01 4. What amount of foreign exchange gain or loss should be recorded on January 30? Page 1 Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk A) $1,516 gain. B) $1,516 loss. C) $575 loss. D) $500 loss. E) $500 gain. Answer: B Difficulty: Medium REFERENCE: Ref. 09_02 Brisco Bricks purchases raw material from its foreign supplier, Bolivian Clay, on May 8. Payment of 2,000,000 foreign currency units (FC) is due in 30 days. May 31 is Brisco's fiscal year-end. The pertinent exchange rates were as follows: [QUESTION] REFER TO: 09_02 5. For what amount should Brisco's Accounts Payable be credited on May 8? A) $2,500,000. B) $2,440,000. C) $1,600,000. D) $1,639,344. E) $1,666,667. Answer: A Difficulty: Medium [QUESTION] REFER TO: 09_02 6. How much Foreign Exchange Gain or Loss should Brisco record on May 31? A) $2,520,000 gain. B) $20,000 gain. C) $20,000 loss. D) $80,000 gain. E) $80,000 loss. Answer: C Difficulty: Medium [QUESTION] REFER TO: 09_02 7. How much US $ will it cost Brisco to finally pay the payable on June 7? A) $1,666,667. B) $2,440,000. C) $2,520,000. D) $2,500,000. E) $2,400,000. Answer: E Difficulty: Medium Page 2 Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk [QUESTION] 8. On June 1, CamCo received a contract to sell inventory for ¥500,000. The sale would take place in 90 days. CamCo immediately signed a 90-day forward contract to sell the yen as soon as they are received. The spot rate on June 1 was $1 = ¥240, and the 90-day forward rate was $1 = ¥234. At what amount would CamCo record the Forward Contract on June 1? A) $2,083. B) $0. C) $2,110. D) $2,532. E) $2,137. Answer: B Difficulty: Medium [QUESTION] 9. Belsen purchased inventory on December 1, 2008. Payment of 200,000 stickles was to be made in sixty days. Also on December 1, Belsen signed a contract to purchase §200,000 in sixty days. The spot rate was $1 = §2.80, and the 60-day forward rate was $1 = §2.60. On December 31, the spot rate was $1 = §2.90 and the 30-day forward rate was $1 = §2.62. Assume an annual interest rate of 12% and a fair value hedge. The present value for one month at 12% is .9901. In the journal entry to record the establishment of a forward exchange contract, at what amount should the Forward Contract account be recorded on December 1? A) $71,428.57. B) $76,923.08. C) $5,549.51. D) $587.20. E) $ 0, since there is no cost, there is no value for the contract at this date. Answer: E Difficulty: Easy [QUESTION] 10. Meisner Co. ordered parts costing §100,000 for a foreign supplier on May 12 when the spot rate was $.24 per stickle. A one-month forward contract was signed on that date to purchase §100,000 at a forward rate of $.25 per stickle. On June 12, when the parts were received and payment was made, the spot rate was $.28 per stickle. At what amount should inventory be reported? A) $0. B) $28,000. C) $24,200. D) $25,000. E) $2,000. Answer: B Difficulty: Medium REFERENCE: Ref. 09_03 Car Corp. (a U.S.-based company) sold parts to a Korean customer on December 16, 2008, with payment of 10 million Korean won to be received on January 15, 2009. The following exchange rates applied: Page 3 's 2009 income statement related to this transaction? A) $ 500 (gain). 2009. Assuming a forward contract was entered into. 2008 December 31.00095 [QUESTION] REFER TO: Ref.0 Answer: C Difficulty: Medium [QUESTION] REFER TO: Ref.000. On December 31.S. this receivable for §200. A) $ 700 (gain).9901. 09_03 11. Mills Inc. Assuming a forward contract was not entered into. E) $ . 2008.'s 2008 income statement related to this transaction? A) $ 500 (gain).000. the U.000 was correctly included in Mills' balance sheet at $132. how much should have been reported as a Page 4 . what would be the net impact on Car Corp. what would be the net impact on Car Corp. E) $ 295.00095 Forward Rate To Jan. 09_03 13.00098 . 2009 Spot Rate $ . dollar equivalent was $144. B) $ 700 (loss).'s 2008 income statement related to this transaction? Assume an annual interest rate of 12% and a fair value hedge. B) $ 500 (loss). B) $ 100 (loss). Answer: E Difficulty: Hard [QUESTION] REFER TO: Ref. had a receivable from a foreign customer that is due in the local currency of the customer (stickles). C) $ 200 (gain). When the receivable was collected on February 15. E) $0. 09_03 12.00090 . In Mills' 2009 consolidated income statement. D) $ 300 (loss).00093 . D) $ 200 (loss). Assuming a forward contract was entered into on December 16.05 (loss). what would be the net impact on Car Corp. C) $ 200 (gain). 15 $ . C) $ 300 (gain). The present value for one month at 12% is .Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Date December 16. 2008 January 15. Answer: A Difficulty: Hard [QUESTION] 14.00092 . D) $ 200 (loss). C) A foreign currency option gives the holder the obligation to only buy foreign currency in the future. a foreign exchange gain will result. E) The Euro value of a foreign currency. Answer: E Difficulty: Easy [QUESTION] 15. dollar value of a foreign currency. D) $10. D) The U.000. B) A foreign currency option gives the holder the obligation only sell foreign currency in the future. B) The price today at which a foreign currency can be purchased or sold in the future. C) $48. a foreign exchange gain will result. A spot rate may be defined as A) The price a foreign currency can be purchased or sold today. a foreign exchange loss will result. E) $12. The forward rate may be defined as A) The price a foreign currency can be purchased or sold today. B) The price today at which a foreign currency can be purchased or sold in the future. D) If the foreign currency appreciates.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk foreign exchange gain? A) $0. B) $36.000.000. C) The forecasted future value of a foreign currency. D) The U. a foreign exchange loss will result. company sells merchandise to a foreign company denominated in U.S. C) The forecasted future value of a foreign currency. Answer: C Page 5 .S. dollar value of a foreign currency.S. B) If the foreign currency depreciates. Answer: D Difficulty: Medium [QUESTION] 18. E) If the foreign currency depreciates. E) The Euro value of a foreign currency. C) No foreign exchange gain or loss will result. D) A foreign currency option gives the holder the right but not the obligation to buy or sell foreign currency in the future.000. A U.S. Which of the following statements is true? A) If the foreign currency appreciates. Answer: A Difficulty: Easy [QUESTION] 16. Which statement is true regarding a foreign currency option? A) A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future. dollars. Answer: B Difficulty: Easy [QUESTION] 17. E) A foreign currency option gives the holder the obligation to buy or sell foreign currency in the future at the spot rate. A U. Answer: E Difficulty: Medium [QUESTION] 23.S. a foreign exchange gain will result. B) If the foreign currency depreciates. Which of the following statements is true? A) If the foreign currency appreciates. Answer: D Difficulty: Medium [QUESTION] 22. A U. SFAS 133 provides guidance for hedges of all the following sources of foreign exchange risk except A) Recognized foreign currency denominated assets and liabilities. a foreign exchange gain will result. company buys merchandise from a foreign company denominated in U.S. E) Any gain or loss will be included in comprehensive income. a foreign exchange gain will result. B) If the foreign currency depreciates. E) Any gain or loss will be included in comprehensive income. D) If the foreign currency appreciates. B) Unrecognized foreign currency firm commitments. B) The current forward rate for a contract that matures on the same date as the forward contract entered into. Page 6 .S. C) Forecasted foreign currency denominated transactions. B) If the foreign currency depreciates. a foreign exchange gain will result. C) No foreign exchange gain or loss will result. company buys merchandise from a foreign company denominated in the foreign currency. Answer: C Difficulty: Medium [QUESTION] 21. C) No foreign exchange gain or loss will result. a foreign exchange loss will result. dollars. A U.S. E) Any gain or loss will be included in comprehensive income. Which of the following statements is true? A) If the foreign currency appreciates. D) If the foreign currency appreciates. D) If the foreign currency appreciates. a foreign exchange loss will result. a foreign exchange loss will result. D) Net investment in foreign operations. E) Deferred foreign currency gains and losses. a foreign exchange gain will result. Answer: A Difficulty: Medium [QUESTION] 20. Which of the following statements is true? A) If the foreign currency appreciates.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Difficulty: Easy [QUESTION] 19. company sells merchandise to a foreign company denominated in the foreign currency. C) No foreign exchange gain or loss will result. All of the following data may be needed to determine the fair value of a forward contract at any point in time except A) The forward rate when the forward contract was entered into. a foreign exchange loss will result. 3. E) It decreases sales. 4) A cash flow hedge of a liability. D) A forward contract designated as a fair value hedge. Answer: B Difficulty: Hard [QUESTION] 27. 2. and 4 E) 1. A speculative derivative would be similar to which type of hedge? A) An option designated as a cash flow hedge. C) A forward contract designated as a cash flow hedge. C) Hedges of foreign currency firm commitments are used for current purchases or sales. Answer: C Difficulty: Hard [QUESTION] 24. B) An option designated as a fair value hedge. D) Hedges of foreign currency firm commitments are used for future sales or purchases.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk C) The future spot rate. D) A discount rate.. 2) A cash flow hedge of an asset. E) The company's incremental borrowing rate. How is the discount recognized over the life of the contract? A) It is charged to a deferred credit. Answer: D Difficulty: Medium Page 7 . A) 1 and 3 B) 2 and 4 C) 1 and 2 D) 1. Answer: C Difficulty: Medium [QUESTION] 26. and 4 Answer: E Difficulty: Easy [QUESTION] 25. E) A speculative option not designated. A company has a discount on a forward contract for an asset. A forward contract may be used for which of the following? 1) A fair value hedge of an asset. E) Hedges of foreign currency firm commitments are speculative in nature. Which of the following statements is true concerning hedge accounting? A) Hedges of foreign currency firm commitments are used for future sales only. D) It increases sales. C) It is charged to accumulated other comprehensive income. 3. B) Hedges of foreign currency firm commitments are used for future purchases only. 3) A fair value hedge of a liability. B) It is charged to a deferred asset. S. Payment is due on February 1. E) Forward contracts used to hedge a foreign currency denominated liability.500. 2008.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk [QUESTION] 28. Relevant exchange rates follow: [QUESTION] REFER TO: 09_04 29. B) $4. Answer: D Difficulty: Medium [QUESTION] REFER TO: 09_04 30. to deliver 150.000. All of the following hedges are used for future purchase/sale transactions except A) Forward contracts used as a fair value hedge of a firm commitment. E) $1. B) $4. 2008 for $. Keenan entered into a forward exchange contract on December 1. Answer: E Difficulty: Medium REFERENCE: Ref.000 euro on February 1.000.500.500. B) $4. C) Hedge of a foreign currency denominated asset. Answer: A Difficulty: Medium [QUESTION] REFER TO: 09_04 31.000. Page 8 . A) $6. Keenan Company. 2007.000. 2007. C) $3. D) Forward cash flow hedges of a forecasted transaction. C) $3. 2007.000 euro. Compute the value of the foreign currency option at February 1. 09_04 On December 1.500. D) $7. Keenan chose to use a foreign currency option to hedge this foreign currency asset designated as a cash flow hedge.000.500. B) Options used as a fair value hedge of a firm commitment. firm.500. E) $1. A) $6. sold merchandise to Velez Company of Spain for 150. A) $6.97. 2008.500. a U. D) $7. Compute the value of the foreign currency option at December 31. 2007. Compute the value of the foreign currency option at December 1. equivalent was $6.900 loss. Answer: C Difficulty: Medium [QUESTION] 33. When a U. this receivable for 75. Compute the U. B) $136. The receivable was collected on March 2. Answer: B Difficulty: Easy [QUESTION] 34.100 gain. D) $6. B) The transaction resulted in an extraordinary gain.900.000.S. C) $145. 2009? A) $1. C) $6. C) The transaction resulted in an extraordinary loss. On December 31. E)$8. dollars.000 gain.S. B) Two-transaction perspective. Inc.S.000 pesos was correctly included in Alpha’s balance sheet at $8. company purchases parts from a foreign company. which of the following will result in no foreign exchange gain or loss? A) The transaction is denominated in U.000. 2008. C) Three-transaction perspective. accrue foreign exchange gains and losses. 2009. Answer: A Difficulty: Easy [QUESTION] 35.. E) $1.500.500. D) The foreign currency appreciated in value relative to the U. had a receivable from a customer that was denominated in pesos.S. Answer: A Page 9 .100 loss. E) The foreign currency depreciated in value relative to the U. D) $141. when the U.000 E) $142.900 gain. D) $7. dollar. dollar. defer foreign exchange gains and losses.S. defer foreign exchange gains and losses.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk C) $3. E) Two-transaction perspective. a U. accrue foreign exchange gains and losses.500. Which of the following approaches is used in the United States in accounting for foreign currency transactions? A) One-transaction perspective.S. Alpha. B) $1. D) One-transaction perspective.500. Answer: B Difficulty: Medium [QUESTION] REFER TO: 09_04 32. company. A) $138.500. 2008.S.000. How much foreign exchange gain or loss will Alpha record on the income statement for the year ended December 31. dollars received on February 1. defer foreign exchange gains and losses. borrowed 100.S. B) $3. 09_05 On April 1. E) $8.000 loss.000 gain. a U.000 loss.000 gain.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Difficulty: Easy REFERENCE: Ref. 2007. D) $2.000 gain. company. E) $7. Answer: D Difficulty: Medium [QUESTION] REFER TO: 09_05 38.000 loss. company.000 gain.000 loss. Shannon Company. C) $6. How much foreign exchange gain or loss should be included in Shannon’s 2007 income statement? A) $3. Angela. Inc.000 gain. B) $1. How much foreign exchange gain or loss should be included in Shannon’s 2008 income statement? A) $1. Angela recorded foreign exchange gain related to both its euro receivable and pound payable.000 loss. Answer: D Difficulty: Medium [QUESTION] REFER TO: 09_05 37. C) $2.S. The dollar value of the loan was as follows: [QUESTION] REFER TO: 09_05 36. had a euro receivable from exports to Spain and a British pound payable resulting from imports from England. 2008. a U. D) $6..000 euros from a foreign lender by signing an interest-bearing note due April 1. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? A) A above B) B above C) C above Page 10 . Frankfurter recorded foreign exchange loss related to both its ruble receivable and euro payable.000 on October 1. a U.000 loss.000 loss. and $881. a U.S.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk D) D above E) E above Answer: B Difficulty: Medium [QUESTION] 39.S.000 loss. had the following foreign currency transactions during 2009: (1. Frankfurter Company.000 gain.000 and paid the invoice on August 3. What amount should be included as a foreign exchange gain or loss from the two transactions for 2010? A) $9. dollar equivalent of $82. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement date? A) A above B) B above C) C above D) D above E) E above Answer: C Difficulty: Medium REFERENCE: Ref. 2009 borrowed the U.S. 2009 at the U. company. dollar equivalent of $80. 2009 for the U. [QUESTION] REFER TO: 09_06 40. dollar equivalent of $872. What amount should be included as a foreign exchange gain or loss from the two transactions for 2009? A) $2.000.000 gain. company. 09_06 Parker Corp.S. Page 11 . B) $2.000 evidenced by a non-interestbearing note payable in euros on October 1.) On October 1. (2.) Purchased merchandise from a foreign supplier on July 5. 2010. The U. Answer: C Difficulty: Medium [QUESTION] REFER TO: 09_06 41. had a ruble receivable from exports to Russia and a euro payable resulting from imports from Italy.000 gain.S..000 on December 31.S. 2009. E) $ 14. C) $10. dollar equivalent of the note amount was $860. 2009. D) $14. Answer: E Difficulty: Easy [QUESTION] 44.000 gain. a U.000 gain.000 gain.000 loss. 2008.000 and paid the invoice on August 3. company. a U.000 loss. B) $1. 2008 at the U. exporter report in net income? A) Discount revenue. E) $ 14. C) Discount expense.S. D) $13. dollar equivalent of $54.. What amount should be included as a foreign exchange gain or loss from the two transactions for 2008? A) $9. D) Premium expense. The exporter signed a forward contract on March 1 to sell yen and designated it as a cash flow hedge of a recognized receivable. C) $2. [QUESTION] REFER TO: 09_07 42.) On October 15. The spot rate was $.000 gain.000 gain. dollar equivalent of the note amount was $295.S.0094. D) $4. B) Premium revenue.000 loss..S. E) $4. Answer: B Difficulty: Medium Page 12 . and the forward rate was $.S. 2009.000 on December 31. had the following foreign currency transactions during 2008: (1.) Purchased merchandise from a foreign supplier on July 16.S. 2008 for the U. The U. C) $11. C) $11.0095. D) $21. dollar equivalent of $315.000 gain. and $299. dollar equivalent of $47.000 loss. Inc. B) $9. Which of the following did the U.000 loss.000 evidenced by a non-interestbearing note payable in euros on October 15.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk B) $9. Answer: D Difficulty: Easy REFERENCE: Ref.000 loss.S. What amount should be included as a foreign exchange gain or loss from the two transactions for 2009? A) $1. E) Both a discount revenue and a premium expense. Williams. (2. Answer: D Difficulty: Medium [QUESTION] REFER TO: 09_07 43.000. company. has a Japanese yen account receivable resulting from an export sale on March 1 to a customer in Japan. 09_07 Winston Corp.S. E) $21.000 on October 15.000 loss.000 gain. 2008. 2008 borrowed the U. the spot rate is $. D) Premium expense. Answer: E Difficulty: Medium [QUESTION] 48. D) $2. dollar per peso exchange rates apply: Date December 1.023. entered into a three-month forward contract to purchase 50. What is the amount of accounts payable that will be paid at this date? A) $20.000.095 Page 13 .000. The following U. C) Discount expense.000.800. when the parts are received.000 Thailand bahts from a foreign supplier on July 7 when the spot rate was $. company. A one-month forward contract was signed on that date to purchase 100. company. E) $2.700.105 $0.000 pesos on March 1.000. Joseph Company.S. Which of the following did the U. On December 1. the spot rate is $.027.025 per baht. ordered parts costing 100. exporter report in net income? A) Discount revenue.000. On August 7.S. company. C) $2.100. 2010.092 $0.028. a U. Larson Company. B) $2.021. Answer: E Difficulty: Medium [QUESTION] 47. The forward contract is properly designated as a fair value hedge of the 1.000. E) $28.000 baht firm commitment.2009 Spot Rate $0.000 rupee firm commitment.025 per rupee. Lawrence Company. D) $27.S.028. E) Both a discount revenue and a premium expense.2009 December 31. a U.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk [QUESTION] 45. A one-month forward contract was signed on that date to purchase 1. The forward contract is properly designated as a fair value hedge of the 100. when the parts are received. B) $20. B) Premium revenue. has an India rupee account receivable resulting from an export sale on September 7 to a customer in India. Answer: B Difficulty: Medium [QUESTION] 46.S. 2009.000.S.1. Primo Inc. a U.500..027. and the forward rate was $.000 rupee at a rate of $.100.000.000 bahts at a rate of $. ordered parts costing 1. On August 7. Larson signed a forward contract on September 7 to sell rupees and designated it as a cash flow hedge of a recognized receivable. At what amount should the parts inventory be carried on Primo’s books? A) $2.000 rupee from a foreign supplier on July 7 when the spot rate was $. company. 2010) $0. a U.090 Forward Rate (Mar. The spot rate was $.S. C) $25. 21 per euro. C) $ 6.19 per euro. the spot rate is $1.000 Premium Expense plus a $6. E) $ 8.000 positive Adjustment to Net Income when the merchandise is received.000 negative Adjustment to Net Income when the merchandise is received.000 positive Adjustment to Net Income when the merchandise is sold.089 N/A Joseph’s incremental borrowing rate is 12 percent. B) $ 4.9803. the spot rate is $1. denominating the transaction in euros. Which of the following is included in Joseph’s December 31.146. expects to order merchandise from a German supplier in three months. On April 1. On April 1. paying 400. Quality Corporation.000 euros. What are the effects on net income from these transactions? A) $4.000 positive Adjustment to Net Income when the merchandise is received.000 positive Adjustment to Net Income when the merchandise is sold.15 asset.000 Discount Expense plus an $8.000 Discount Expense plus a $4. company.000 negative Adjustment to Net Income when the merchandise is sold.000 euros at a rate of $1. expects to order merchandise from a German supplier in three months.20. Answer: C Page 14 .58 liability. a U. E) $ 12.146.000 Discount Expense plus a $6.000 euros. and Ram orders and receives the merchandise. The present value factor for two months at an annual interest rate of 12 percent is . D) $490. denominating the transaction in euros. What are the effects on net income from these transactions? A) $6.000 Discount Expense plus a $12.20.58 asset. the spot rate is $1. D) $ 8. At the end of three months.000 euros at a rate of $1. Ram Corporation. D) $ 12. On August 31.19 per euro. At the end of three months. and Quality enters into a three-month forward contract to purchase 400.S.000 negative Adjustment to Net Income when the merchandise is received. and Quality orders and receives the merchandise.000 Discount Expense plus an $8. Answer: C Difficulty: Hard [QUESTION] 50. 2009 balance sheet for the forward contract? A) $5.000 negative Adjustment to Net Income when the merchandise is sold.S.21 per euro.000 negative Adjustment to Net Income when the merchandise is received. On August 31. C) $500 liability. B) $ 6.15 liability. E) $490.000 Premium Expense plus a $4. 2010 $0.000 Premium Expense plus a $4. B) $5. and Quality enters into a three-month forward contract to purchase 600.000 negative Adjustment to Net Income when the merchandise is sold. C) $ 4. Answer: E Difficulty: Medium [QUESTION] 49. company.000 Premium Expense plus a $6. paying 600. a U. the spot rate is $1.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk March 1.000 Discount Expense plus an $12. Atherton purchased a threemonth call option on 100. a U.000 E) $5.340 D) $5. Inc. E) $14.000 Mexican pesos. Woolsey Corporation. Page 15 . On July 24.000.000.000 pounds.S.260 C) $4. 2007.000. D) $12.S. 2008. a U. Atherton. On January 17. C) $10. 09_08 On May 1. The following exchange rates apply: What amount will Atherton include as an option expense in net income during the period January 17 to April 17? A) $4. B) $5. company.000 British pounds and designated this option as a cash flow hedge of a forecasted foreign currency transaction.000 lira. The following exchange rates apply: What amount will Woolsey include as an option expense in net income during the period July 24 to October 24? A) $4. with delivery and payment to be made on April 17. Mosby Company received an order to sell a machine to a customer in Canada at a price of 2. expects to order goods from a foreign supplier at a price of 100. Answer: A Difficulty: Easy [QUESTION] 52.000.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Difficulty: Hard [QUESTION] 51.260 Answer: D Difficulty: Easy REFERENCE: Ref.000 lira and designated this option as a cash flow hedge of a forecasted foreign currency transaction. Woolsey purchased a three-month call option for 250.000. with delivery and payment to be made on October 24. expects to order goods from a British supplier at a price of 250. The machine was shipped and payment was received on March 1.000 B) $4. company.000.. 60 decrease.000 pesos on March 1.60 decrease.760. 09_08 54.000. 2007. C) $9. B) $1.000. B) $2. and the present value factor for two months at a 12 percent annual rate is . D) $2. 2007.760. [QUESTION] REFER TO: Ref. E) $2.760. The following spot exchange rates apply: Mosby’s incremental borrowing rate is 12 percent.00 decrease.000 increase. C) $2.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk On May 1. What was the net impact on Mosby’s 2008 income as a result of this fair value hedge of a firm commitment? A) $1. Mosby properly designates the option as a fair value hedge of the peso firm commitment. What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk? A) $0 B) $9.960. Answer: D Difficulty: Hard [QUESTION] REFER TO: Ref.760. Answer: C Difficulty: Hard Page 16 .760. Mosby purchased a put option giving it the right to sell 2.000 increase.500 increase. 09_08 55.500 decrease. 2008 at a price of $190. E) $1.60 decrease. E) $188.60 decrease. 09_08 53.60 increase. What was the net impact on Mosby’s 2007 income as a result of this fair value hedge of a firm commitment? A) $1.200 on December 31.000 and had a fair value of $3. C) $1.60 increase. The option cost $3.000 decrease.9803.000. Answer: A Difficulty: Hard [QUESTION] REFER TO: Ref.000 decrease. D) $188.960.60 increase. D) $1. 760.000.240. D) $1. 2007. 09_09 56. E) $379.000 British pounds on March 1. 2008. What was the net impact on Mattie’s 2007 income as a result of this fair value hedge of a firm commitment? A) $1. D) $20. Mattie Company received an order to sell a machine to a customer in England at a price of 200. Answer: E Difficulty: Hard [QUESTION] REFER TO: Ref.000 decrease. 09_09 58. The following spot exchange rates apply: Mattie’s incremental borrowing rate is 12 percent.60 increase. Mattie purchased a put option giving it the right to sell 200.000 British pounds. E) $20. C) $10. 09_09 57. On March 1. and the present value factor for two months at a 12 percent annual rate is .360. B) $1.000 increase.200 on December 31.40 decrease.40 increase.390.360.000 decrease.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk REFERENCE: Ref.40 decrease. What was the net increase or decrease in cash flow from having purchased the foreign currency option to hedge this exposure to foreign exchange risk? A) $0 B) $10.60 decrease.40 decrease. C) $2. 2007. E) $2. 09_09 On March 1. What was the net impact on Mattie’s 2008 income as a result of this fair value hedge of a firm commitment? A) $379. 2008 at a price of $380. The machine was shipped and payment was received on March 1. Page 17 . Mattie properly designates the option as a fair hedge of the pound firm commitment.760.60 decrease. The option cost $2. C) $8. D) $ 4.000 increase. Answer: B Difficulty: Hard [QUESTION] REFER TO: Ref.60 increase. 2007.9803.660. [QUESTION] REFER TO: Ref.60 increase.660.240.000 and had a fair value of $2. B) $8.760.60 decrease. 2007? A) B) C) D) Foreign Currency Option Cash Foreign Currency Option Option Revenue Foreign Currency Option Option Revenue Option Expense 200 200 200 200 400 400 200 Page 18 .800 Cash 1.800 A) A above. 09_10 60. 2007? A) Cash 1. 09_10 On October 1. the option has a fair value of $1.800 B) Forward Contract 1. On December 31.000 pounds with a strike price of $2.800 Foreign Currency Option 1.000 British pounds. 2008. Eagle Company forecasts the purchase of inventory from a British supplier on February 1. 09_10 59. The following spot exchange rates apply: [QUESTION] REFER TO: Ref. What journal entry should Eagle prepare on October 1. Answer: E Difficulty: Medium [QUESTION] REFER TO: Ref. Eagle pays $1.00 per pound. On October 1. 2007. 2007.800 Gain on Foreign Currency 1.800 E) Foreign Currency Option 1. D) D above. The option is considered to be a cash flow hedge of a forecasted foreign currency transaction. at a price of 100.800 D) Loss on Foreign Currency 1. What journal entry should Eagle prepare on December 31. 2007. B) B above.800 for a three-month call option on 100.800 Cash 1.800 C) Foreign Currency Option 1.600.800 Cash 1. E) E above. C) C above.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Answer: B Difficulty: Hard REFERENCE: Ref. D) $2. B) $1.000.000. 09_10 61. Answer: C Difficulty: Medium [QUESTION] REFER TO: Ref. What is the 2008 effect on net income as a result of these transactions? A) $195. C) C above. D) D above. E) $2.000. Answer: D Difficulty: Medium [QUESTION] REFER TO: Ref.600. E) $203. 09_10 64. E) $0.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk E) Foreign Currency Option Option Expense Foreign Currency Option 200 400 400 A) A above. D) $202.600.600.600. 09_10 63.000 B) $201.600 Page 19 .000. What is the amount of Cost of Goods Sold for 2008 as a result of these transactions? A) $200. Answer: A Difficulty: Medium [QUESTION] REFER TO: Ref.500. B) $195.600. C) $1. C) $201. B) B above.800.000. What is the amount of Adjustment to Accumulated Other Comprehensive Income for 2008 from these transactions? A) $1.000. What is the amount of option expense for 2008 from these transactions? A) $1. C) $2. B) $1. Answer: B Difficulty: Medium [QUESTION] REFER TO: Ref. D) $2. E) E above. 09_10 62.000. Difficulty: Easy [QUESTION] 67. Answer: Yelton could sign a forward exchange contract to sell the lira in 60 days after they are received. just sold inventory for 80. Yelton Co.000 D) $202. In addition to avoiding possible losses. the currently available forward rate will likely fluctuate relative to the “fixed” contracted forward rate. What is meant by the spot rate? Answer: The spot rate is the price at which a foreign currency can be purchased or sold today. Difficulty: Medium [QUESTION] 69. and several Internet sites. Difficulty: Easy [QUESTION] 70.000 Answer: B Difficulty: Hard Essay [QUESTION] 65. Briefly describe a hedging transaction Yelton could engage in to reduce its risk of unfavorable exchange rates.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk C) $201. As time passes. dollar and most foreign currencies? Answer: Foreign exchange rates are published in the Wall Street Journal. Yelton could purchase an option to sell the lira in 60 days after they are received. Where can you find exchange rates between the U.S. On the initial date of the contract.000 lira. Difficulty: Easy [QUESTION] 68. What is the major assumption underlying the one-transaction perspective? Answer: The one-transaction perspective assumes that an export sale is not complete until the foreign currency receivable has been collected and converted into U. dollars. creating a difference that must be accounted for as a gain or loss on the forward contract. this would result in a fair value of $0. major U. How is the fair value of a Forward Contract determined under SFAS 133? Answer: The fair value of a Forward Contract is determined by comparing the difference between the contracted forward rate and the currently available forward rate for contracts expiring on the same date.” Difficulty: Medium Page 20 . newspapers.S. companies hedge foreign currency transactions and commitments to introduce an element of certainty into the future cash flows resulting from foreign currency activities. Difficulty: Easy [QUESTION] 66. which Yelton will collect in sixty days.600 E) $203. Hedging involves establishing a price today at which foreign currency can be sold or purchased at a future date. A contract with a net gain over its life is recorded on the balance sheet as a Forward Contract Asset. Alternatively. What is meant by the term hedging? Answer: “Hedging is the process of eliminating exposure to foreign exchange risk so as to avoid potential losses from fluctuations in exchange rates. A contract with a net loss over its life is recorded on the balance sheet as a Forward Contract Liability.S. S. How does a foreign currency forward contract differ from a foreign currency option? Answer: “Whereas the owner of a foreign currency option can choose whether to exercise the option and exchange one currency for another or not. company purchases goods denominated in a foreign currency and the foreign currency appreciates? Answer: The event results in a foreign exchange loss. Difficulty: Medium [QUESTION] 75. Difficulty: Medium [QUESTION] 74. Payment of ¥400. 2009 January 18. Difficulty: Medium [QUESTION] 76. What happens when a U. Gaw Produce Co.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk [QUESTION] 71. What happens when a U. What happens when a U. What factors create a foreign exchange gain? Answer: “Foreign exchange gains and losses are created by two factors: having foreign currency exposures (foreign currency receivables and payables) and changes in exchange rates. What happens when a U.000 was due on January 18.S.S. 2009. purchased inventory from a Japanese company on December 18. company purchases goods denominated in a foreign currency and the foreign currency depreciates? Answer: The event results in a foreign exchange gain.” Difficulty: Medium [QUESTION] 72. a party to a foreign currency forward contract is obligated to deliver one currency in exchange for another at a specified future date.” Difficulty: Medium [QUESTION] 73. 2010 Exchange Rate $1 = ¥125 $1 = ¥122 $1 = ¥120 Required: Page 21 . Difficulty: Medium [QUESTION] 77. 2010. 2009 December 31.S. Exchange rates between the dollar and the yen were as follows: Date December 18. company sells goods denominated in a foreign currency and the foreign currency appreciates? Answer: The event results in a foreign exchange gain. company sells goods denominated in a foreign currency and the foreign currency depreciates? Answer: The event results in a foreign exchange loss. (a U.000.000.000 x ($1 ÷ ¥125) .000. Payment was received on October 15.48 §1 = $.2009 October 15.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Prepare all journal entries for Gaw Produce Co.68 54.S. 33 Cash (¥4. company) made a sale to a foreign customer on September 15.48) Page 22 48. in connection with the purchase and payment.000 .64 54.1 Foreign Exchange Loss 8 Accounts Payable (¥4. 2009. Purchases (¥4.3 3 3. Answer: 2009 Sept.000 x ($1 ÷ ¥120) Difficulty: Medium [QUESTION] 78.44 Required: Prepare all journal entries for Old Colonial Corp.333.000 stickles..200. Old Colonial Corp.000.000 x ($1 ÷ ¥120) 18 Accounts Payable 78. 2009.333.000 x $.(¥4. for 100. in connection with this sale assuming that the company closes its books on September 30 to prepare interim financial statements. 2009 September 30. Accounts Receivable (§100.000 x ($1 ÷ ¥125) 18 Accounts Payable 3.000.68 78.(¥4.000.50 §1 = $.0 0 3. 2009 Exchang e Rate §1 = $.200. 00 31 Foreign Exchange Loss Accounts Payable (¥4.000 x ($1 ÷ ¥122) .000 x ($1 ÷ ¥122) 2010 Jan. Answer: 2009 Dec. The following exchange rates applied: Date September 15.64 3. 000 x ($. company in Texas) had the following series of transactions in a foreign country during 2009.44) 6.$.000 Oct.000 x ($.000 x ($.23 = 1 peso $.000 Difficulty: Medium REFERENCE: Ref. 09_11 Coyote Corp.22 = 1 peso $. 2009 August 1. 2009 adjusting entries. (a U.24 = 1 peso $.000 2.000 30 Accounts Receivable Foreign Exchange Gain (§100. Prepare all journal entries in U.48) 2.000 6.44) 15 Accounts Receivable 44.$. The appropriate exchange rates during 2009 were as follows: The appropriate exchange rates during 2009 were as follows: Date March 1.$.S. Cash (§100.S.2009 December 31. dollars along with any December 31.000 Oct.50 . 09_11 79.25 = 1 peso [QUESTION] REFER TO: Ref.50 . 2009 September 1. 2009 Exchange Rate $.20 = 1 peso $.000 44. Foreign Exchange Loss 15 Accounts Receivable (§100. Answer: 2009 Page 23 . Coyote uses a perpetual inventory system. 2009 May 1.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk 15 Sales 48.50 . report on its 2009 financial statements for Cost of Goods Sold? Answer: Cost of Goods Sold (60.20) Inventory 7.20 .200 Difficulty: Medium [QUESTION] REFER TO: Ref.880 Difficulty: Medium Page 24 .000p x $.000 x $.000 11. 09_11 [QUESTION] REFER TO: Ref.25)] Accounts Payable 1.20 x 40%): $ 4.000p x $.000 x $.23) 11.22) Foreign Exchange Gain Sept.000 pesos x $. 09_11 81.22 $. report on its 2009 financial statements for Inventory? Answer: Inventory (60.20) Accounts Payable 12. 31 10.000 x ($.800 Difficulty: Medium [QUESTION] REFER TO: Ref.000p x $.000 Accounts Receivable (54.200 180 180 Difficulty: Medium REFERENCE: Ref.880 Cash (48. 31 Dec. What amount will Coyote Corp.22) Sales 11. 1 Dec.000 pesos x $.880 Accounts Receivable (48.$. What amount will Coyote Corp.200 1.24) 7.200 Accounts Payable (36.22): $11.200 8.440 Foreign Exchange Loss [24. 09_11 82.640 1.040 12.000 x ($. 09_11 80.560 480 Cost of Goods Sold (36. report on its 2009 financial statements for Sales? Answer: Sales (54.200 Accounts Receivable Foreign Exchange Gain [6.20 x 60%): $ 7.25)] 7.20) Foreign Exchange Loss Cash (36.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk March 1 May 1 August 1 Inventory (20.000p x $.000p x $.000 pesos x $. What amount will Coyote Corp. The present value factor for one month is .24)): $ 2. report on its 2009 financial statements for Accounts Receivable? Answer: Accounts Receivable ((54. The two month forward exchange rate on that date was 1 LCU = $. On December 1. King entered into a forward exchange contract wherein 96. report on its 2009 financial statements for Accounts Payable? Answer: Accounts Payable ((60. [QUESTION] REFER TO: Ref.25): $ 6. What amount will Coyote Corp.23) – (36. King Co.28 = 1 LCU $.000pesos x $.18 = $1.000 local currency units (LCU) in full payment for this inventory.35 = 1 LCU Spot Rate $.000 Difficulty: Medium [QUESTION] REFER TO: Ref. The beginning balance of cash was 50.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk [QUESTION] REFER TO: Ref. King agreed to accept 96.30 = 1 LCU 1-Month Forward Rate Spot Rate $.500 Difficulty: Medium [QUESTION] REFER TO: Ref. Payment was to be made on February 1. What amount will Coyote Corp.000 pesos x $. 09_12 On November 10. 09_12 Page 25 .000 LCU would be delivered to a currency broker in two months.27 = 1 LCU The company's borrowing rate is 12%.30. What amount will Coyote Corp.18) + (48. translated at $. 2009.32 = 1 LCU 2-Month Forward Rate Spot Rate $.000 pesos) x $. 2008 February 1.000 pesos) x $.000–36.000 pesos x $. 2008 December 1. 09_11 84. sold inventory to a customer in a foreign country.400 Difficulty: Medium REFERENCE: Ref. 2008 December 31.25): $ 1. 2009 Rate Description Spot Rate Exchange Rate $. 2008.000 pesos on January 1. report on its 2009 financial statements for Cash? Answer: Cash (50.000–48.9901. The spot rates and forward rates on various dates were as follows: Date November 10. 09_11 85.29 = 1 LCU $. 2008. 09_11 83. 2009. 901 [(.920 1..72 $.920 -976 = 944 Foreign currency Accounts receivable 5.901 976 3 976 1.84 -$5.720 Foreign Exchange Loss Accounts receivable AOCI Gain on Forward Contract Forward contract AOCI Discount expense AOCI 4 (.9901 = 1. (B.28) 96..32 $30.920 979 979 944 4 944 25.920 1.30) x 96.760 1.800/30. 11/10/ 08 Accounts receivable 33.760 5.27 +$ 9792 09 0 1 2 [(.920 $.32 .000 = 1.. Prepare the journal entries relating to the transaction and the forward contract.000] x .901 = 979 A.29 $27.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk 86. (C.600 5.880 – 1.92 -$1.60 08 0 12/01/ $.35 $33.760 Accounts receivable AOCI Gain on Forward Contract Forward Contract AOCI Discount expense AOCI 3 [1-(28.000] = 2.920 25.) Compute the effect on 2009 net income.760 5.30 .) Compute the effect on 2008 net income.28 +$1.720)1/2 x 30.920 Page 26 .27 $25.901 1.600 Sales 12/01/ 08 No entry 12/31/ 08 Foreign Exchange Loss 02/01/ 09 33.9011 08 0 02/01/ $.920 1.30 .) Assume this hedge is designated as a cash flow hedge.760 $.27) 96.30 08 0 12/31/ $. Answer: Date Spot Value Change Forward Change 11/10/ $. (A. (B.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Cash Forward contract Foreign currency 28.800 2.920 25. 11/10/ Accounts receivable 33.901 Foreign Exchange Loss 1.901 Accounts receivable 1. (C.600 08 Sales 33.901 Forward contract Gain on Forward Contract Foreign currency Accounts receivable Cash Forward contract Foreign currency 1.800 2.920 Difficulty: Hard [QUESTION] REFER TO: Ref.920 1. (A.880 25. Answer: A.901 02/01/ 09 5. 09_12 87.760 1.) Assume this hedge is designated as a fair value hedge. Prepare the journal entries relating to the transaction and the forward contract.760 Accounts receivable Forward Contract Gain on Forward Contract 1.) Compute the effect on 2008 net income.) Compute the effect on 2009 net income.920 28.600 12/01/ 08 No entry 12/31/ 08 Foreign Exchange Loss 5.880 25.920 25.920 Page 27 . a forward exchange contract was acquired whereby Jarvis Co.86 = 1 LCU The company's borrowing rate is 12%. Assuming this is a cash flow hedge. was to pay 100.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Difficulty: Hard REFERENCE: Ref.S. 2009 December 31. [QUESTION] REFER TO: Ref.83= 1 LCU $. 2009 February 1. Answer: Page 28 . dollars.80 = 1 LCU $. The spot and forward rates for the LCU were as follows: Date October 1. 2010) and receive $78. prepare journal entries for this sales transaction and forward contract. 2009. 09_13 88. 09_13 On October 1.000 LCU in four months (on February 1. 2010 Rate Description Spot Rate Spot Rate 1-Month Forward Rate Spot Rate Exchange Rate $.85 = 1 LCU $. The present value factor for one month is .000 in U.9901. 80 $.000 2.000] = 8..7214 6.000 2.020 3.279 = 3.020 1 2 [(.000 2.86 Value $83.000 $85.000 1.78)100.85 $.000 +$1.000 78..000 Adjustment -$1.000 Difficulty: Hard [QUESTION] REFER TO: Ref.980 -$6.000/83. Answer: Page 29 .000 – 1.83-.000] = 2.980 [(.721 Foreign currency Accounts receivable Cash Forward contract Foreign currency 86.279 1-(78.980 1.000-1.78)100.000 1.721 (.86 +$2.980 = 6.000)1/4 = .000 1.000 6.000 2.83 $.80 .279 Accounts receivable Foreign Exchange Gain Loss on Forward Contract AOCI AOCI Forward contract Discount expense AOCI 4 83.000=5. prepare journal entries for this sales transaction and forward contract.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Date 10/1/09 12/31/09 2/1/10 1 2 Spot $.86)100.020 3. Assuming this is a fair value hedge.000 $86.0154 x 83.000 Change Forward $.9901 = 1.78 $. 09_13 89.000 8.000 = 1.980 1.000 1.020 10/1/09 Accounts receivable Sales 12/31/09 Accounts receivable Foreign Exchange Gain Loss on Forward Contract AOCI AOCI Forward contract Discount expense AOCI 3 2/1/10 83.000 86.2793 1.000 1.78 .000 86.000 x . 000 2.020 86.78)100. 2009 October 31.000 8.86)100.000 .. Prepare all journal entries related to this foreign currency borrowing assuming the following: October 31.78 $.000 x .S.000 francs into $ at the spot rate Page 30 50.500] (To record the note and conversion of 100.020 1 2 [(.000 1.980 1. 2008 October 31.000 franc loan from a foreign bank at an interest rate of 3 percent per year.000 6.000 78.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk Date 10/1/09 12/31/09 2/1/10 1 2 Spot $.980 = 6..000 Forward $.83 $. Interest payments are made annually on October 31.020 10/1/09 Accounts receivable Sales 12/31/09 Accounts receivable Foreign Exchange Gain Loss on Forward Contract Forward contract 2/1/10 Accounts receivable Foreign Exchange Gain Loss on Forward Contract Forward contract Foreign currency Accounts receivable Cash Forward contract Foreign currency 83.600 $0.000 $85.000 +1.000 – 1.000 $86.020 6.750 Answer: In US dollars: 10/31/08 Cash Note Payable (franc) [100. 2008 December 31.980 1. and the principal will be repaid on October 31. 2009 December 31.9901 = 1.000 Difficulty: Hard [QUESTION] REFER TO: Ref.-dollar financial statements and has a December 31 year-end. 2010 Franc Rate $0.000] = 8.525 $0.000] x 2.000 83. Darling prepares U. 2008.80 $.80 .980 -$6.625 $0.500 $0.000 86.000 Change +$2. 09_13 90.85 $. On October 31.000 x $.000 86.86 Adjustment -$1. 2010.86 Value $83.78 .000 1.980 [(.000 2.000 50. Darling Company negotiated a two-year 100. 500 francs x $. and record a foreign exchange loss on the interest payable accrued at 12/31/08.000 x ($. For each of the following situations.500 Interest Expense [2.250 $62.600 – $. record interest expense for the period 1/1 – 10/31/09.000 francs x $.800 312 312 Foreign Exchange Loss Note Payable (franc) [100.750] (To record the second annual interest payment.750 – $.) 1.525 and record a foreign exchange loss.525 – $.000 x ($.525)] (To revalue the note payable at the spot rate of $.) $1.000 franc note.500 $75. record interest expense for the period 1/1 – 10/31/10.000 francs x $.) 2.750] Interest Payable (franc) Foreign Exchange Loss [500 francs x ($.) 10.000 x 3% x 2/12 = 500 francs x $. and record a foreign exchange loss on the interest payable accrued at 12/31/09.500 1.000 Difficulty: Hard [QUESTION] 91. Page 31 .750] (To record payment of the 100. select the best answer concerning accounting for foreign currency transactions: (A) Results in a foreign exchange gain.000 francs x $.000 $2.625)] Cash [3.625 – $.600] (To record the first annual interest payment. (C) No foreign exchange gain or loss.525 spot rate] (To accrue interest for the period 10/31 – 12/31/08.500)] (To revalue the note payable at the spot rate of $.875 312 63 Note Payable (franc) Foreign Exchange Loss Cash [100.525)] Cash [3.) 2.000 Interest Expense [2.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk 12/31/08 10/31/09 12/31/09 10/31/10 Interest Expense Interest Payable (franc) [100. (B) Results in a foreign exchange loss.625] (To accrue interest for the period 10/31 –12/31/09.) 262 262 Foreign Exchange Loss Note payable (franc) [100.600] Interest Payable (franc) Foreign Exchange Loss [500 francs x ($.500 francs x $.) 10.500 12.625 and record a foreign exchange loss.500 262 38 Interest Expense Interest Payable (franc) [500 francs x $. Export sale by a U. Export sale by a U.S. company denominated in foreign currency. (5) A. _____7. (6) C.S. company denominated in foreign currency. company denominated in dollars. Import purchase by a U. foreign currency of buyer depreciates. company denominated in dollars. _____5.Chapter 9 Foreign Currency Transactions and Hedging Foreign Exchange Risk _____1. (8) B Difficulty: Hard Page 32 . Import purchase by a U. company denominated in foreign currency. _____8. Import purchase by a U. company denominated in dollars.S. foreign currency of buyer depreciates.S. Export sale by a U.S. foreign currency of buyer depreciates. foreign currency of buyer appreciates. foreign currency of buyer appreciates. (4) C. company denominated in dollars.S. (7) C.S. (2) A. foreign currency of buyer appreciates. foreign currency of buyer depreciates. Import purchase by a U. Answer: (1) C. _____2. _____6.S. company denominated in foreign currency. (3) B . _____4. Export sale by a U. _____3. foreign currency of buyer appreciates.