1. On November 6, 20X7, Zucor Corp. purchased merchandise from an unaffiliated foreign company for 50,000 units of the foreign company's local currency. On that date, the spot rate was $1.259. Zucor paid the bill in full three months later when the spot rate was $1.258. The spot rate was $1.255 on December 31, 20X7. What amount should Zucor report as a foreign currency transaction gain in its income statement for the year ended December 31, 20X7?

a. $0

b. $50

c. $150

d. $200

2. Tinitoys, Inc., a domestic company, purchased inventory from a Brazilian company for 500,000 Brazilian reals (Br. reals) on May 1, 20X2. Payment is due on June 30, 20X2. On May 1, 20X2, Tinitoys also entered into a 60-day forward contract to purchase 500,000 Brazilian reals. The forward contract is not designated as a hedge. Tinitoys' fiscal year ends on May 31. The direct exchange rates were as follows:

	Spot Rate	Forward Rate
May 1, 20X2	$0.523	$0.525 (60 days)
May 31, 20X2	$0.516	$0.52 (30 days)
June 30, 20X2	$0.508

Based on the preceding information, the entries on June 30, 20X2, include a

a. debit to Dollars Payable to Exchange Broker, $262,500.

b. credit to Cash, $254,000.

c.credit to Premium on Forward Contract, $6,000.

d. credit to Foreign Currency Receivable from Exchange Broker, $262,500.

3. All of the following are management tools available for a U.S. company to hedge its net investment in a foreign affiliate except for:

a. Forward exchange contracts

b. Foreign currency commitments

c. Intercompany financing arrangements including intercompany transactions

d. None of the above.

4. Mint Corporation has several transactions with foreign entities. Each transaction is denominated in the local currency unit of the country in which the foreign entity is located. On November 2, 20X8, Mint sold confectionary items to a foreign company at a price of LCU 23,000 when the direct exchange rate was 1 LCU = $1.08. The account has not been settled as of December 31, 20X8, when the exchange rate has increased to 1 LCU = $1.10. The foreign exchange gain or loss on Mint's records at year-end for this transaction will be:

a. $460 loss

b. $387 loss

c. $387 gain

d. $460 gain

5. Robert Company sold inventory to an Australian company for 50,000 Australian dollars on April 1, 20X0 with settlement to be in 60 days. On the same date, Robert entered into a 60-day forward contract to sell 50,000 Australian dollars at a forward rate of $1.164 in order to manage its exposed foreign currency receivable. The forward contract is not designated as a hedge. The spot rates were as follows:

April 1	1 Australian dollar = $1.167
May 31	1 Australian dollar = $1.16

Based on the preceding information, had Robert not used the forward exchange contract, what would have been the foreign currency transaction gain or loss for the year?

a. Gain of $200

b. Gain of $150

c. Loss of $350

d. Loss of $200

6. On December 1, 20X8, Hedge Company entered into a 60-day speculative forward contract to sell 200,000 British pounds () at a forward rate of 1 = $1.78. On the same day it purchased a 60-day speculative forward contract to buy 100,000 euros () at a forward rate of 1 = $1.42. The rates are as follows:

Date	Spot Rate	Forward Rate for Feb 1	Spot Rate	Forward Rate for Feb 1
December 1, 20X8	1 = $1.76	$1.78	1 = $1.40	$1.42
December 31, 20X8	1 = 1.73	1.74	1 = 1.38	1.40
February 1, 20X9	1 = 1.75		1 = 1.41

Hedge had no other speculation transactions in 20X8 and 20X9. Ignore taxes.

Based on the preceding information, what is the net gain or loss on the British pound speculative contract?

a. $8,000 gain

b. $6,000 gain

c. $3,000 loss

d. $10,000 gain

7. Highland Company sold goods to an Egyptian company for 350,000 Egyptian pounds on December 6, 20X3, with payment due on January 15, 20X4. The exchange rates were as follows:

December 6, 20X3	1 Egyptian pound = $0.1593
December 31, 20X3	1 Egyptian pound = $0.1612
January 15, 20X4	1 Egyptian pound = $0.1604

Based on the preceding information, which of the following is true of the dollar's movement vis--vis the Egyptian pound during the period?

	December 6 - 31	January 1 - 15
A.	Dollar weakened	Dollar strengthened
B.	Dollar weakened	Dollar weakened
C.	Dollar strengthened	Dollar strengthened
D.	Dollar strengthened	Dollar weakened

a. Option A

b. Option B

c. Option C

d. Option D

8. Based on the preceding information, what is Highland's overall net gain or net loss from its foreign currency exposure related to this transaction?

a. $280 loss

b. $302 loss

c. $385 gain

d. $665 gain

9. (Note: Question 29 is a Kaplan CPA Review Question)

On September 22, 20X1, Yumi Corp. purchased merchandise from an unaffiliated foreign company for 10,000 units of the foreign company's local currency. On that date, the spot rate was $.55. Yumi paid the bill in full, six months later, on March 20, 20X2, when the spot rate was $.65. The spot rate was $.70 on December 31, 20X1. What amount should Yumi report as a foreign currency transaction loss in its income statement for the year ended December 31, 20X1?

a. $500

b. $0

c. $1,500

d. $1,000