Foreign Operations

Question 1

Define: Denomination

Answer 1

The measurement of an instrument based on the currency in which it will be settled, which is the currency in which it is denominated (received or paid).

Question 2

Define: Local or Transactional Currency

Answer 2

The currency in which a company maintains its books and records generally its local currency.

Question 3

Define: Functional Currency

Answer 3

The currency with the greatest economic impact on the company, generally the same as the local or transactional currency.

Question 4

Define: Reporting (Presentation) Currency

Answer 4

The currency used to prepare an entities financial statements.

Question 5

Define: Remeasurement

Answer 5

The process of converting information from the local currency to the functional when it is also the reporting currency.

Question 6

Define: Remeasurement Adjustment (Gain or Loss)

Answer 6

Net of all adjustments to financial statement elements as a result of the remeasurement process, recognized in earnings.

Question 7

Define: Translation

Answer 7

The process of converting information from the functional currency, when it is also the local currency, into the reporting currency.

Question 8

Define: Translation Adjustment (Gain or Loss)

Answer 8

Net of all adjustments to financial statement elements as a result of the translation process, recognized in Other Comprehensive Income (OCI).

Question 9

Define: Spot Rate

Answer 9

Foreign currency exchange rate on the date of a transaction.

Question 10

Define: Forward Rate

Answer 10

Foreign currency exchange rate expected to be in effect at some point in the future and at which a forward exchange contract may be entered.

Question 11

Define: Forward Exchange Contract

Answer 11

Agreemtn to exchange a certain amount of foreign currency for U.S. dollars, or some other currency, on a specific date in the future at a predetermined exchange rate.