DRILL FOR FOREX
THEORIES
1. The exchange rates between the US dollars and
the Philippine peso were as follows:
November 1, 2016 $1 = P46.50
December 1, 2016 $1 = P47.16
January 1, 2017 $1 = P48.65
February 1, 2017 $1 = P49.35
March 1, 2017 $1 = P50.05
Interpret the above chart in connection with
importation of goods by Filipinos from the United
States of America.
a. This chart shows a strengthening of the US
dollars which makes it less expensive for
Filipinos to buy American goods.
b. The chart shows a weakening of the US dollars
which makes it less expensive for Filipinos to
buy American goods.
c. The chart shows a strengthening of the US
dollar which makes it more expensive for
Filipinos to buy American goods.
d. This chart shows a weakening US dollar which
makes it more expensive for Filipinos to buy
American goods.
2. Foreign currency gains and losses on fair value
hedges are
a. Always reported currently in earnings.
b. Initially reported in earnings and later
reclassified to other comprehensive income
c. Initially reported in other comprehensive
income and later reclassified to earnings.
d. Initially deferred as assets and liabilities.
3.Foreign exchange gains and losses on accounts
receivable and payable are denominated in a foreign
currency are:
a. Accumulated and reported upon settlement
b. Deferred and treated as transaction price
adjustment
c. Reported as equity adjustments from
translation
d. Recognized in the period in which the exchange
rates change
4. Davao Company sold merchandise denominated in
FC. Davao Company decided to hedge the sale of
merchandise probably because
a. There is no cost involved, the forward contract
is executory in nature, hence no cash will be
paid upon inception.
b. It is always a win-win situation, a minimal cost
is incurred if predicted changes in spot rates
materialize, as chances of foreign currency
gains remain unaffected should rate changes
went the opposite way.
c. The Philippine peso might probably strengthen
against the Dirham by the time the payment is
received.
d. Since the Dirham is predicted to strengthen
against the peso n the settlement date, the
foreign currency gain on a purchase forward
contract will hedge the loss on the hedged
item.
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5. Which of the following statements is correct
a. In Philippines, the cost of a unit of foreign
currency in Philippine pesos is a direct
quotation, while the cost in that foreign
currency of purchasing one in Philippine pesos
is referred to as an indirect quotation.
b. In Philippines, the cost of a unit of foreign
currency in in Philippine pesos is an indirect
quotation, while the cost in that foreign
currency of purchasing one in Philippine pesos
is referred to as a direct quotation
c. In Philippines, the cost of a unit of foreign
currency in in Philippine pesos is a direct
quotation, and the cost in that foreign currency
of purchasing one in Philippine pesos is also
referred to as a direct quotation.
d. In Philippines, the cost of a unit of foreign
currency in in Philippine pesos is an indirect
quotation, while the cost in that foreign
currency of purchasing one in Philippine pesos
is also referred to as an indirect quotation.
6. The rate charged by commercial banks for the
purchase of any foreign currency (In Canadian
dollars) on any given day would be based on which
of the following
a. The Foreign currency hedge.
b. The forward contract.
c. The spot rate.
d. The forward exchange contract.
7. A Philippine company has payables to suppliers
denominated in euros, and hedges these payables
with foreign currency forward purchase contracts.
The euro strengthens against the Philippine peso.
Which statement is true?
a. The gain on the payables and the loss on
the forward are reported on the income
statement.
b. The gain on the payables and the loss on
the forward are reported in other
Comprehensive income.
c. The loss on the payables and the gain on
the forward are reported on the income
statement.
d. The loss on the payables and the gain on
the forward are reported in other
comprehensive income.
8. A Philippine company has entered into a forward
purchase contract to hedge a reported foreign
currency obligation. If the peso weakens against
the foreign currency,
a. the forward contract appears as a current
asset on the company's balance sheet.
b. the forward contract's reported value
exactly offsets the reported foreign
currency obligation, with no net balance
sheet disclosure.
c. the gain on the forward contract adds to
other comprehensive income.
d. the gain on the foreign currency obligation
adds to other comprehensive income.
9. A Philippine company has euro-denominated
receivables that it hedges with a forward sale of
euros. The euro weakens against the Philippine
peso. Which statement is true?
EXCEL PROFESSIONAL SERVICES, INC.

a. The gain on the receivables and the loss on On April 8, 2019, CALAMBA CORPORATION purchased
the forward are reported on the income merchandise from an unaffiliated foreign company for 5,000
statement. units of the foreign company’s local currency. CALAMBA paid
b. The gain on the receivables and the loss on the bill in full on March 1, 2020 when the spot rate was
the forward are reported in other P0.45. The spot rate was P0.60 on April 8, 2019 and was
Comprehensive income. P0.55 on December 31, 2019 .
c. The loss on the receivables and the gain on 3. For the year ended December 31, 2020, CALAMBA
the forward are reported on the income should report a transaction gain of
statement. a. P1,500 c. P1,000
d. The loss on the receivables and the gain on b. P 500 d. P 0
the forward are reported in other
Comprehensive income. 5,000 x (.45 - .55)= 500 Decrease in AP

10. On December 1, a Philippine company agrees to

buy euros on February 1 at a contract price of
P64.00. The exchange rate for euros declines to On July 1, 2019, BORACAY, INC. lent FC 100,000 to a
P63.50 (Philippine strengthens) between December foreign supplier, evidenced by an interest-bearing note due
1 and December 31, when the company's reporting on July 1, 2020. The note is denominated in the currency of
year ends. How is this contract reported on the the borrower and was equivalent to P840,000 on the loan
date. The note principal was approximately included at
company's year-end balance sheet?
P820,000 in the receivables section of TAWI-TAWI’s
a. In the asset section.
December 31, 2019 balance sheet. The note principal was
b. In the liability section.
repaid to BORACAY on the July 1, 2020 due date when the
c. As a contra asset.
exchange rate was FC 1 to P8.
d. The contract is not reported on the balance
4. In its income statement for the year ended December
sheet.
31, 2019, the amount Conception should include as a
foreign currency transaction gain or (loss) is
a. P40,000 c. P80,000
PROBLEMS
b. P(40,000) d. P(20,000)
On September 1, 2019 Junjun Company received an order
840,000 -820,000 = (20,000) Decrease in AR
for equipment form a foreign customer for FC 300,000
when the Philippine peso equivalent was P96,000. Junjun
On June 15, 2019, BULACAN CORP purchased merchandise
shipped the equipment on October 15, 2019, and billed the
worth 100,000 Swiss francs from its Swiss supplier payable
customer for FC 300,000 when the Phil. Peso equivalent was
within 30 days under an open account arrangement.
P100,000. Junjun received the customer’s remittance in full
BULACAN issued a 30-day 6% note payable in Swiss francs.
on November 16, 2019, and sold the FC 300,000 for
On July 15, 2019 BULACAN paid the note in full. The
P105,000.
following information on spot rates (P/SF) are provided:
1. In its income statement for the year ended December
Buying Selling
31, 2019, Junjun should report a foreign exchange gain
June 15, 2019 P24.03 P24.15
of
July 15, 2019 24.10 24.22
a. P5,000 c. P9,000
b. P4,000 d. No gain no loss
5. BULACAN’s foreign exchange gain or (loss) for the
transaction is
105,000 – 100,000= 5,000
a. (P5,040) c. P12,075
b. (P7,035) d. (P19,110)
Alecks Corporation had the following foreign currency
6% / 12months= Effective rate per month of 0.5%
transactions during 2019
(100,000* 1.005) x (24.15-24.22) = (7,035) Inc in AP
a. Merchandise was purchased from foreign supplier on
January 20, 2019 for the Peso equivalent of P90,000.
The invoice was paid on March 20, 2019 at the Phil. Peso
6. How much did BULACAN pay the Swiss supplier on July
equivalent of P96,000.
15, 2018?
b. On July 1, 2019, Alecks borrowed the Philippine peso
a. P2,415,015 c. P2,434,110
equivalent of P500,000 evidenced by a note that was
b. P2,422,050 d. P2,427,075
payable in the lender’s local currency on July 1, 2020.
On December 31, 2019, the Phil. Peso equivalent of the
(100,000* 1.005) x 24.22= 2,434,110
principal amount and accrued interest were P520,000
and P26,000 respectively. Interest on the note is 10%
per annum.
A foreign subsidiary of MINDANAO COMPANY. (a Philippine
firm) has certain balance sheet accounts on December 31,
2. In Aleck’s income statement, the amount that should be
2018. The subsidiary is a self-sustaining operation. The
included as a foreign exchange loss
parent’s books are kept in Philippine pesos and will
a. P 0 c. P 6,000
consolidate in its functional currency. Information relating
b. P21,000 d. P27,000
to these accounts in Phil. Pesos is as follows:
Transaction a: 90,000- 96,000 = (6,000) Inc in AP
Transaction b:
Translated at
Principal 520,000- 500,000 = (20,000) Inc in AP
Current Historical
Interest (500k x 10% x 6/12) – 26,000 = (1,000)
rate rate
Total Loss= (27,000)
Accounts receivable P75,000 P85,000
Inventories (carried at 600,000 700,000
average cost)
Prepaid Insurance 25,000 30,000

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EXCEL PROFESSIONAL SERVICES, INC.

Land 55,000 70,000 d. 2018 = P300 gain; 2019= 600 loss

7. What amount should be included as total assets on 2018: 30,000 * ( 1.12 – 1.13)= 300 Inc in CR
MINDANAO’ balance sheet on December 31, 2018 as the 2019: 30,000* (1.13- 1.11)= (600) Dec in CR
result of above information?
a. P770,000 c. P780,000
b. P755,000 d. P875,000 The PANGASINAN, INC. owns a foreign subsidiary that had
net income for the year ended December 31, 2019 of FC
75,000+ 600,000+ 25,000 + 55,000= 755,000 4,800,000, which was approximately translated into
P800,000.
On December 15, 2019, when the rate of exchange was FC
On December 10, 2019, QUEZON CORP entered into a 90 5.7 to P1.00, the foreign subsidiary paid a dividend of FC
day forward exchange contract involving FC 1,000,000 in 2,400,000. The dividend represented the net income of the
anticipation that the FC would weaken. The following direct foreign subsidiary for the six months ended June 30, 2018,
exchange rates are assumed: during which time the weighted average exchange rate was
Spot rate (for March 10, 2020) FC 5.81 to P1.00. the exchange rate in effect at December
Forward rate 31, 2019 was FC5.9 to P1.00.
Dec. 10, 2019 P0.90 P0.86 13. What rate of exchange should be used to translate the
Dec. 31, 2019 0.80 0.87 dividend for the December 31, 2019 financial
Mar. 10, 2020 0.91 Na statements?
a. FC 5.7 to P1.00 c. FC 5.90 to P1.00
8. The amount of the foreign currency transaction gain or b. FC 5.8 to P1.00 d. FC 6.00 to P1.00
loss that would be reported in the income statement for
the year 2019 on the forward exchange contract, Dividends are translated using historical rate
assuming that the contract is a hedge of a recorded but
unsettled inventory sale transaction is
a. P20,000 gain c. P10,000 loss Inflation rate of a foreign country for three years are as
b. P40,000 gain d. P20,000 loss follows:
Index Change Annual rate of
1M x ( 0.86- 0.87)= (10,000) Inc in CP in Index Inflation
Jan. 1, 2017 150
Jan. 1, 2018 200 50 50/150 = 33%
9. Same information as in No. 8, but assume that the Jan. 1, 2019 250 50 50/200 = 25%
forward exchange contract pertains to speculation in Jan. 1, 2020 330 80 80/250 = 32%
foreign currency.
a. P40,000 loss c. P 0 14. The cumulative three-year inflation rate is
b. P30,000 loss d. P10,000 loss a. 45% c. 120%
b. 90% d. 180%
Same answer (10,000)
(330- 150) 150= 120%
10. If one New Taiwan dollar can be exchanged for P1.025
Philippine money, the fraction to be used to compute
indirect quotation of exchange rate expressed in CAGAYAN DE ORO CORP.. has acquired a fully-controlled
Taiwanese currency is subsidiary in Thailand on January 1, 2019. The determined
a. 0.975/1.00 c. 1.00/1.025 functional currencies of the entities are: for the parent,
b. 1.00/0.975 d. 1.025/1.00 Philippine pesos; for the subsidiary, Thailand baht.
The following are summarized from the balance sheets of
1/direct quoted rate= 1/1.025 the affiliated companies at December 31, 2019. (Summary
figures exclude inter-company balances.)
Phil Parent Thai Subsidiary
On December 1, 2018, a Philippine firm purchased a Monetary assets P 10,000,000 B 3,000,000
speculative hedge to buy 30,000 foreign currency when the Non-monetary assets 20,000,000 B 6,500,000
spot rate was P1.10 and a 60 day forward rate was P1.12.
The spot rate at December 31 (the company’s year-end was The relevant spot rates are to be used
P1.25 and a 30-day forward rate was P1.13. When the Current Rate TB1 is to P1.50
speculative hedge was exercised on January 31, 2019 the Historical rate TB1 is to P1.40
spot rate was P1.11 and a 30 day forward rate, P1.12. Weighted average rate TB1 is to P1.45
11. The journal entry to record this hedge would include a
debit to Contract Receivable in the amount of 15. Based on the above data, determine the consolidated
a. P33,600 c. P33,000 balances (1) for monetary assets, and (2) for non-
b. P 600 d. P 0 monetary assets, if the group decide on a baht
presentation currency.
Contract receivable (FC) 33,600 a. (1) B 9,666,667; (2) B19,833,333
Contract payable 33,600 b. (1) B10,142,857; (2) B20,833,333
30,000 * 1.12 c. (1) B 9,666,667; (2) B20,785,714
d. (1) B 9896, 552; (2) B20,833,333

12. The amount of foreign exchange gain/loss that would

appear on the income statements of the Philippine Monetary: (10M/ 1.50) + 3M= 9,666,667
company resulting from this speculative hedge for the Non Monetary: (20M/1.5) + 6.5M= 19,833,333
years ended 2018 and 2019 are
a. 2018 = P300 loss; 2019 = 600 loss We use translation: Phil parent functional Currency as the
b. 2018 = P300 gain; 2019 = 600 gain PHP and the Presentation currency as TB
c. 2018 = P300 loss; 2019 = 600 gain

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EXCEL PROFESSIONAL SERVICES, INC.

DAVAO CORPORATION sold handicraft goods to a US firm In NEGROS OCCIDENTAL’ 2018 income statement, what
for $100,000 in 2018. Pertinent information on exchange amount should be included as foreign Exchange losses
rates follows: a. P40,000 c. P228,000
Conversion Rate b. P200,000 d. P300,000
(Peso to US$)
September 4 Receipt of order P45.80 Transaction 1: 608,000- 600,000 = (8,000) Inc in AP
October 15 Date of shipment P47.00 Transaction 2:
December 31 Date of balance sheet P47.20 Principal: 3.2M- 3M= (200,000) Inc in AP
January 6, 2019 Date of settlement P46.00 Interest: 120,000- (3M x 10% x 4/12)= (20,000)
Total Loss= 228,000
16. The sale would be appropriately recorded at
a. P4,700,000 c. P4,720,000
b. P4,580,000 d. P4,600,000

100,000 * 47.00= 4,700,000

DOT is date of delivery/shipment

On December1, 2019, SULU, INC. received an order for

equipment FOB shipping point from a Swiss Company. The
order is billed for 86,000 Swiss Francs, payable on January
31, 2020. The equipment was shipped and invoiced to the
Swiss Company on December 12, 2019.

Relevant spot exchange rates for Swiss Francs on various

dates follow:
Buying Spot Rate Selling Spot Rate
December 1, 2019 P51.45 P51.60
December 12, 2019 51.58 51.84
December 31, 2019 51.72 51.96
January 31, 2020 51.68 51.89

17. On the December 31, 2019 income statement of SULU

CORPORATION, how much is the FOREX gain or (loss)
to be reported on this transaction?
a. P12,040 c. P(14,280)
b. P14,280 d. P(10,320)

86,000 * (51.72- 51.58)= 12,040 Inc in AR

18. On July 1, 2019, TARLAC CORPORATION borrowed

1,680,000 yen from a Japanese Lender evidenced by an
interest-bearing note due July 1, 2020. The Philippine
Peso equivalent of the note principal was as follows:
July 1, 2019 - Date borrowed P210,000
Dec. 31, 2019 - Balance sheet date 240,000
July 1, 2020 - Date repaid 280,000

In its income statement for 2020, what amount should

TARLAC include as a foreign Exchange gain or loss?
a. P70,000 gain c. P40,000 gain
b. P70,000 loss d. P40,000 loss

280,000 – 240,000 = (40,000) Inc in AP

19. NEGROS OCCIDENTAL, INC., has the following foreign

currency transactions during 2018:
1. Merchandise was purchased from a foreign supplier
on January 10, 2018, for the Phil-peso equivalent of
P600,000. The invoice was paid on April 20, 2018,
at the Philippine peso equivalent of P608,000.
2. On September 1, 2018, NEGROS OCCIDENTAL
borrowed the Philippine peso equivalent of
P3,000,000 evidenced by a note that was payable
in the lender’s local currency on September 1, 2018.
On December 31, 2018, the Philippine peso
equivalent of the principal amount and accrued
interest were P3,200,000 and P120,000
respectively. Interest on the note is 10%.

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