Currency Exchange Rates Paper 6

1

When the U.S. dollar is expected to rise in value against foreign currencies, a U.S. company with foreign currency denominated receivables and payables should






2

A short-term speculative rise in the world-wide value of domestic currency could be moderated by a central bank decision to






3

Bonner Electronics has subsidiaries in several international locations and is concerned about its exposure to foreign exchange risk. In countries where currency values are likely to fall, Bonner should encourage all of the following policies except






4

A U.S. company has an account payable it must pay in 6 months with one Japanese company and an account receivable to be received in 6 months with another Japanese company. The U.S. company would not have transaction exposure if






5

A firm in Australia imports chairs from Bangladesh and resells them in Australia for A$45 per unit. The firm placed an order for 1,000 chairs with the supplier in Bangladesh at a cost of B$60 per unit. As per the terms of the agreement, payment is not required until the goods arrive in 30 days. The current exchange rate is B$1.5753 for A$1. The firm expects the exchange rate to decline to B$1.5500 for A$1. In order to manage short-term exchange rate risk, the firm decides to hedge and lock in an exchange rate of B$1.5650 for A$1. What would be the pre-tax profit from the sale of chairs?






6

Suppose that the current exchange rate between the Japanese yen (¥) and the U.S. dollar ($) is ¥100 = $1. A financial analyst predicts that the exchange rate will be ¥94 = $1 next year. If the analyst uses purchasing power parity as the basis of the prediction, the analyst expects that the yen will






7

Which of the following should be reported as a stockholders’ equity account?






8

A foreign subsidiary’s functional currency is its local currency, which has not experienced significant inflation. The weighted-average exchange rate for the current year would be the appropriate exchange rate for translating Sales to customers Wages expense






9

The functional currency of Nash, Inc.’s subsidiary is the euro. Nash borrowed euros as a partial hedge of its investment in the subsidiary. In preparing consolidated financial statements, Nash’s translation loss on its investment in the subsidiary exceeded its exchange gain on the borrowing. How should the effects of the loss and gain be reported in Nash’s consolidated financial statements?






10

A balance arising from the translation or remeasurement of a subsidiary’s foreign currency financial statements is reported in the consolidated income statement when the subsidiary’s functional currency is the
Foreign currency . . . . US dollar






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