Foreign Operations

Question 1

required exchange rate

Answer 1

usually current exchange rate

However, it is generally impractical to use exact exchange rates for the dates of numerous revenue, expense, gain, and loss transactions so it is acceptable to use an appropriate AVERAGE exchange rate to translate those elements.

Question 2

translation

Answer 2

convert local currency to US dollars on fin stmt

result from converting financial statements from the functional currency into the reporting currency, are recognized in other comprehensive income (OCI)

Question 3

remeasurement

Answer 3

functional currency is U.S. dollars

result from converting financial statements from the local currency into the functional currency, are recognized in INCOME

Question 4

cash flow hedge

Answer 4

interest rate swap: would protect the company from changes in its future payments

Question 5

Under IFRS, cash flow hedges

Answer 5

reported at fair value and gains or losses are recognized in other comprehensive income (OCI)

Question 6

translation loss

exchange gain

Answer 6

The translation loss less the exchange gain is reported in other comprehensive income

Question 7

functional currency

Answer 7

is the currency of the primary economic environment in which the entity does business,

may be its local currency, the U.S. dollar, or some other currency

Question 8

presentation currency,

Answer 8

which may or may not be the functional currency, is the currency in which the financial statements are being presented.

Question 9

gain/loss on cash flow hedge

Answer 9

not reported on income, 0

reported in OCI

Question 10

if local currency is the functional currency

Answer 10

converting it to US dollars is called TRANSLATION

Question 11

if the functional currency is the U.S. dollar

Answer 11

converting local currency to US dollars: then it’s called remeasurement

Question 12

In order to account for a derivative, such as a futures contract, as a fair value hedge,

Answer 12

a company is required to document the relationship between the hedge and the hedged risk, indicate that the hedge is expected to be highly effective, and provide an explanation as to how effectiveness will be measured. The entity is not required to identify the portion of the hedge that is expected to be ineffective.

Question 13

spot rate

Answer 13

usually used for receivable and payables

Question 14

forward rate

Answer 14

forward rate is generally used for forward exchange or futures contracts