ADVANCED FIN. ACCT. LL W/ACCESS>CUSTOM<
12th Edition
ISBN: 9781265074623
Author: Christensen
Publisher: MCG CUSTOM
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Chapter 11, Problem 11.3E
Basic Understanding of Foreign Exposure
The Hi-Stakes Company has a number of importing and exporting transactions. Importing activities result in payables and exporting activities result in receivables. (LCU represents the local currency unit of the foreign entity.)
Required
a. If the direct exchange rate increases, does the dollar weaken or strengthen relative to the other currency? If the indirect exchange rate increases does the dollar weaken or strengthen relative to the other currency?
b. Indicate in the following table whether Hi−Stakes will have a foreign currency transaction gain (G), loss (L), or not be affected (NA) by changes in the direct or indirect exchange rates for each of the four situations presented.
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Title: Identification
Things to do:
1. A
second
function
of
the
foreign
exchange market is to
provide
exchange
possibility that unpredicted changes
future exchange rates
adverse consequences for the firm.
insurance
against
risk,
which
is
the
in
will have
exchange rate is the rate
foreign exchange dealer
2. The
at
which
a
converts
currency into another
one
currency on a particular day.
3.
The
value
of
a
is
determined
by
the
interaction
between
the
demand
and
supply of
that currency relative to the demand
and supply of other currencies.
4. A
parties agree
exchange occurs
to exchange currency
when two
and
execute
the
deal
at
some
specific date in the future.
5.
rates governing such future
transactions
are
referred
to
as
forward exchange rates.
6. Changes in
be problematic for an
business.
exchange rates
can
international
7. A
is
the
simultaneous
purchase and sale of a given amount
of
foreign
exchange
for
two
different value dates.
8. When
a
firm
enters
into
a
it is taking out
possibility…
The exchange loss/gain due to a transaction exposure is estimated while
O a. Converting a foreign currency into a domestic currency
O b. Quoting a price for a foreign currency transaction
O c. Entering into a transaction in foreign exchange
O d. Verifying the fluctuation in the exchange rate
The Hi-Stakes Company has a number of importing and exporting transactions. Importing activities result in payables and exporting
activities result in receivables (CU represents the local currency unit of the foreign entity)
Required:
a. If the direct exchange rate increases, does the dollar weaken or strengthen relative to the other currency? If the indirect exchange
rate increases, does the dollar weaken or strengthen relative to the other currency?
Direct exchange rate
Indirect exchange rate
b. Indicate in the following table whether H-Stakes will have a foreign currency transaction gain, loss, or not be affected (NA) by
changes in the direct or indirect exchange rates for each of the four situations presented
Importing
Importing
Exporting
Exporting
Dollar
LCU
Dollar
LCU
Chapter 11 Solutions
ADVANCED FIN. ACCT. LL W/ACCESS>CUSTOM<
Ch. 11 - Prob. 11.1QCh. 11 - Prob. 11.2QCh. 11 - The U.S. dollar strengthened against the European...Ch. 11 - Prob. 11.4QCh. 11 - Prob. 11.5QCh. 11 - How are assets and liabilities denominated in a...Ch. 11 - Prob. 11.7QCh. 11 - Prob. 11.8QCh. 11 - Prob. 11.9QCh. 11 - Distinguish between an exposed net asset position...
Ch. 11 - Prob. 11.11QCh. 11 - Prob. 11.12QCh. 11 - Effects of Changing Exchange Rates Analysis Since...Ch. 11 - Prob. 11.2CCh. 11 - Prob. 11.5CCh. 11 - Prob. 11.1ECh. 11 - Prob. 11.2ECh. 11 - Basic Understanding of Foreign Exposure The...Ch. 11 - Prob. 11.5ECh. 11 - Prob. 11.6ECh. 11 - Prob. 11.7ECh. 11 - Adjusting Entries for Foreign Currency Balances...Ch. 11 - Prob. 11.9ECh. 11 - Prob. 11.10ECh. 11 - Prob. 11.11.1ECh. 11 - Prob. 11.11.2ECh. 11 - Prob. 11.11.3ECh. 11 - Prob. 11.11.4ECh. 11 - Prob. 11.11.5ECh. 11 - Prob. 11.11.6ECh. 11 - Prob. 11.11.7ECh. 11 - Prob. 11.12ECh. 11 - Prob. 11.13ECh. 11 - Prob. 11.14.1ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.3ECh. 11 - Prob. 11.14.4ECh. 11 - Prob. 11.14.5ECh. 11 - Foreign Currency Transactions [AICPA Adapted]...Ch. 11 - Prob. 11.14.7ECh. 11 - Prob. 11.15ECh. 11 - Prob. 11.16AECh. 11 - Prob. 11.17ECh. 11 - Prob. 11.18ECh. 11 - Prob. 11.19.1ECh. 11 - Prob. 11.19.2ECh. 11 - Prob. 11.19.3ECh. 11 - Prob. 11.19.4ECh. 11 - Prob. 11.19.5ECh. 11 - Prob. 11.20.1PCh. 11 - Prob. 11.20.2PCh. 11 - Prob. 11.20.3PCh. 11 - Prob. 11.20.4PCh. 11 - Prob. 11.20.5PCh. 11 - Foreign Sales Tex Hardware sells many of its...Ch. 11 - Prob. 11.22PCh. 11 - Prob. 11.23.1PCh. 11 - Prob. 11.23.2PCh. 11 - Prob. 11.24PCh. 11 - Prob. 11.25PCh. 11 - Prob. 11.26PCh. 11 - Prob. 11.27.1PCh. 11 - Prob. 11.27.2PCh. 11 - Prob. 11.27.3PCh. 11 - Prob. 11.28APCh. 11 - Prob. 11.29.1BPCh. 11 - Prob. 11.29.2BPCh. 11 - Prob. 11.29.3BPCh. 11 - Prob. 11.29.4BPCh. 11 - Prob. 11.29.5BPCh. 11 - Prob. 11.29.6BPCh. 11 - Prob. 11.30BPCh. 11 - Prob. 11.31BPCh. 11 - Matching Key Terms Match the items in the lefthand...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- A). Why do we need to translate the financial statement of foreign operations? B). Explain the concepts of local currency, functional currency and presentation, orrency with example. K C). How is the profit or loss from translating foreign operations' financial statements from local currency to functional currency treated? D) How are the profit and loss from translating foreign ope ions' financial statements from functional currency to presentation currency treated?arrow_forwardWhich of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses?arrow_forwardAn example of transaction exposure is when Question 4 options: companies have obligations for the purchase of goods at previously agreed prices. companies borrow funds in domestic currency. there is an impact of currency exchange rate changes on the reported financial statements of a company. there is a long-term effect of changes in exchange rates. changing exchange rates persists on future prices, sales, and costsarrow_forward
- F. Accountingarrow_forwardIf the foreign operations reports in the currency of hyperinflationary economy, assets and liabilities are translated at Group of answer choices Average rate Exchange rate on date of transaction Forward rate Closing ratearrow_forward14. Which of the following combinations correctly describes the relationship between foreign currency transactions, exchange rate changes, and foreign exchange gains and losses? Type of Transaction Foreign Currency Foreign Exchange Gain /Loss A. Export sale Appreciates Loss B. Import purchase Appreciates Gain C. Import purchase Depreciates Gain D. Export sale Depreciates Gaiarrow_forward
- which shall be recognized for each item when foreign currency gain or loss that arises from translation of foreign currency denominated transaction to functional currency? a. inventiry b. interest expense c. accounts receivable d. unearned revenuearrow_forwardWhich of the following suggests that the foreign entity's functional currency is the parent's currency? a. Intercompany transaction volume is low. b. Debt is serviced through local operations. c. There is an active and primarily local market. d. Sale prices are influenced by international factors.arrow_forwardWhich of the following refers to an agreement to exchange one currency for another ( two flows of cash) at a specified exchange rate and date between two businesses? O a. Currency call option O b. Spread O c Currency swap O d. Currency put optionarrow_forward
- Foreign exchange risks a. Occur when cash flows are affected by currency exchange rates b. May be managed with forwards contracts c. May be managed with futures contracts d. Both a) and b) e. Both a) and c)arrow_forwardWant answerarrow_forward(a) Explain the following terms which are used in the foreign exchange market:(i) Value “Tom” and value “Tod”; (ii) Direct quotation and indirect quotation.arrow_forward
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