International Accounting 5140 Exam
Questions and Answers 100% Solved
Cash Flow Exposure - ✔✔Exists if changes in exchange rates can affect
the amount of cash flow to be realized from a transaction, with changes in
cash flow reflected in net income. A cash flow exposure exists for 1)
recognized foreign currency assets and liabilities, 2) Foreign currency firm
commitments, 3) Forecasted foreign currency transations.
Independent float - ✔✔Currency value allowed to move freely with little
government intervention.
Pegged to another currency - ✔✔currency value fixed (pegged) in terms of
a particular foreign currency (e.g., U.S. Dollar), and central bank intervenes
to maintain the exchange rate.
European Monetary System (Euro) - ✔✔twelve countries use a single
currency, which floats against other currencies such as the U.S. Dollar.
Spot Rate - ✔✔today's price for purchasing or selling (bid or ask) a foreign
currency.
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,Forward Rate - ✔✔today's price for purchasing or selling a foreign currency
for some future date.
Premium - ✔✔when the forward rate is greater than the spot rate for a
particular day.
Discount - ✔✔when the forward rate is less than the spot rate for a
particular day.
Hedging - ✔✔Protecting against losses from exchange rate fluctuating.
Foreign currency forward contract - ✔✔an agreement to buy or sell foreign
currency at a future date.
Foreign currency Option - ✔✔the Right to buy or sell foreign currency for a
period of time. Gives you the right, but not the obligation, to trade foreign
currency for some period.
Strike Price - ✔✔the exchange rate at which currency will be exchanged
when option is exercised.
Option Premium - ✔✔cost of purchasing the option, which is a function of
the option's intrinsic value and time value.
Intrinsic value - ✔✔is the gain that could be made by immediate exercise of
the option.
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, Time value - ✔✔the value that derives from the fact that the currency value
could increase during the remainder of the option period.
Export Sale - ✔✔a company sells to a foreign customer and later receives
payment in the Customer's Currency.
Import Purchase - ✔✔A company purchases from a foreign supplier and
later pays in the suppliers currency.
Two Transaction Perspective - ✔✔Treats sale and collection as two
transactions.
Sale is one transaction and collection is a 2nd transaction.
Sale is based on Current Exchange Rate.
If exchange rate changes, collection if for different amount.
Difference is considered foreign exchange gain or loss.
Concepts are identical for purchase transaction
Export Sale -> Asset Exposure - ✔✔if foreign currency appreciates ->
foreign exchange gain
if foreign currency depreciates -> foreign exchange loss
Import Purchase -> liability exposure - ✔✔if foreign currency appreciates ->
foreign exchange loss
if foreign currency depreciates -> foreign exchange gain
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©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
Questions and Answers 100% Solved
Cash Flow Exposure - ✔✔Exists if changes in exchange rates can affect
the amount of cash flow to be realized from a transaction, with changes in
cash flow reflected in net income. A cash flow exposure exists for 1)
recognized foreign currency assets and liabilities, 2) Foreign currency firm
commitments, 3) Forecasted foreign currency transations.
Independent float - ✔✔Currency value allowed to move freely with little
government intervention.
Pegged to another currency - ✔✔currency value fixed (pegged) in terms of
a particular foreign currency (e.g., U.S. Dollar), and central bank intervenes
to maintain the exchange rate.
European Monetary System (Euro) - ✔✔twelve countries use a single
currency, which floats against other currencies such as the U.S. Dollar.
Spot Rate - ✔✔today's price for purchasing or selling (bid or ask) a foreign
currency.
1
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
,Forward Rate - ✔✔today's price for purchasing or selling a foreign currency
for some future date.
Premium - ✔✔when the forward rate is greater than the spot rate for a
particular day.
Discount - ✔✔when the forward rate is less than the spot rate for a
particular day.
Hedging - ✔✔Protecting against losses from exchange rate fluctuating.
Foreign currency forward contract - ✔✔an agreement to buy or sell foreign
currency at a future date.
Foreign currency Option - ✔✔the Right to buy or sell foreign currency for a
period of time. Gives you the right, but not the obligation, to trade foreign
currency for some period.
Strike Price - ✔✔the exchange rate at which currency will be exchanged
when option is exercised.
Option Premium - ✔✔cost of purchasing the option, which is a function of
the option's intrinsic value and time value.
Intrinsic value - ✔✔is the gain that could be made by immediate exercise of
the option.
2
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
, Time value - ✔✔the value that derives from the fact that the currency value
could increase during the remainder of the option period.
Export Sale - ✔✔a company sells to a foreign customer and later receives
payment in the Customer's Currency.
Import Purchase - ✔✔A company purchases from a foreign supplier and
later pays in the suppliers currency.
Two Transaction Perspective - ✔✔Treats sale and collection as two
transactions.
Sale is one transaction and collection is a 2nd transaction.
Sale is based on Current Exchange Rate.
If exchange rate changes, collection if for different amount.
Difference is considered foreign exchange gain or loss.
Concepts are identical for purchase transaction
Export Sale -> Asset Exposure - ✔✔if foreign currency appreciates ->
foreign exchange gain
if foreign currency depreciates -> foreign exchange loss
Import Purchase -> liability exposure - ✔✔if foreign currency appreciates ->
foreign exchange loss
if foreign currency depreciates -> foreign exchange gain
3
©JOSHCLAY 2024/2025. YEAR PUBLISHED 2024.
