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Flashcards in Foreign Currency Hedges Deck (18)
1

FX forward contracts establish a ______ to buy or sell foreign currency.

Obligation, such as a contract that requires paying in US dollars or Euros

2

FX option contracts establish a _____ to buy or sell a foreign currency.

Right

3

FX derivatives are measured at historical price. TF

False, FV

4

Changes in FX derivative FVs = Gains and Losses

True

5

Speculation G/L is recognized in what?

Current Income

6

Spot rates are used to record AR and AP transactions, forward rates are used to record forward contracts. TF

True

7

When a forward contract is entered, what is recorded?

No debit or credit entry, only a memo

8

The forward contract FV is what?

The amount of the underlying x the forward rate

9

Forward contracts are marked to market on the balance sheet date and when exercised. TF

True

10

Option contract fair value is listed as the option ________.

Premium

11

FV hedge accounting applies to the hedge of a forecasted transaction. TF

False, Cash flow hedge acctg

12

The effective portion of a forecasted transaction hedge is always the PV of the expected cash flow (cash flow hedge). TF

True, and reported in OCI

13

The ineffective portion of a forecasted transaction hedge is always the PV of the expected cash flow (cash flow hedge). TF

False, the ineffective portion is the difference between the PV of expected cash flow and the FV of the forward contract. It is recorded as a gain or loss and into current income.

14

The use of a forward contract to hedge a forecasted transaction requires that the forecasted transaction be expected to be initiated by the entity hedging the forecasted transaction.

False, does not require

15

Any FC asset or liability can be hedged, FV or CF. TF

True

16

Foreign currency AFS investments hedges are ALWAYS FV hedges. TF

True, and all gains or losses get reported in NI

17

In hedging a foreign currency investment AFS, the investment security (must/must not) be traded in the investors functional currency.

Must

18

Speculative forward contracts are measured using what rate?

Forward rate