GROUP ACTIVITY (MAXIMUM 5 MEMBERS)

Submission Date: 16-11-2022 (WEDNESDAY)

Encircle The Correct Answer:

1. A discount or premium on a forward contract is deferred and included in the
measurement of the related foreign currency transaction if the contract is classified as

a. hedge of a net investment in a foreign entity.

b. hedge of an exposed asset or liability position.
c. hedge of an identifiable foreign currency commitment.
d. contract acquired to speculate in the movement of exchange rates.

2. The discount or premium on a forward contract entered into as a hedge of an exposed

asset or liability position should be:
a. included as a separate component of stockholders’ equity.
b. amortized over the life of the forward contract.
c. deferred and included in the measurement of related foreign currency transaction.
d. none of these.

3. An indirect exchange rate quotation is one in which the exchange rate is quoted:
a. in terms of how many units of the domestic currency can be converted into one
unit of foreign currency.
b. for the immediate delivery of currencies exchanged.
c. in terms of how many units of the foreign currency can be converted into one unit
of domestic currency.
d. for the future delivery of currencies exchanged.

4. A transaction gain or loss is reported currently in the determination of income if the

purpose of the forward contract is to:
a. hedge a net investment in a foreign entity.
b. hedge an identifiable foreign currency commitment.
c. speculate in foreign currency.
d. none of these.

5. The forward exchange rate quoted for the remaining term of a forward contract is
used to account for the contract when the forward contract:
a. extends beyond one year or the current operating cycle.
b. is a hedge of an identifiable foreign currency commitment.
c. is a hedge of an exposed net liability position.
d. was acquired to speculate in foreign currency.
 HANDWRITTEN

1. Briefly describe a forward exchange contract and give one example.

2. Differentiate between forward-based derivatives and option-based derivatives.