1- Which of the following statements is INCORRECT?

Multiple Choice

1. The historical rate is the exchange rate on the date of the transaction and the closing rate is the exchange rate at the end of the reporting period.
2. The forward rate and spot rate on the date of the transaction are the same rate.
3. The spot rate is the rate on the date of the transaction and the historical rate on the date of the transaction are the same rate.
4. The average rate is the exchange rate used only for transactions where using the historical rate for each transaction would be very costly and not worth the cost-benefit trade-off.

2- Which of the following statements is correct?

Multiple Choice

1. In Canada, the cost of a unit of foreign currency in Canadian dollars is a direct quotation, while the cost in that foreign currency of purchasing one Canadian dollar is referred to as an indirect quotation.
2. In Canada, the cost of a unit of foreign currency in Canadian dollars is an indirect quotation, while the cost in that foreign currency of purchasing one Canadian dollar is referred to as a direct quotation.
3. In Canada, the cost of a unit of foreign currency in Canadian dollars is a direct quotation, and the cost in that foreign currency of purchasing one Canadian dollar is also referred to as a direct quotation.
4. In Canada, the cost of a unit of foreign currency in Canadian dollars is an indirect quotation, while the cost in that foreign currency of purchasing one Canadian dollar is also referred to as an indirect quotation.

3- Which statement best describes a forward exchange contract?

Multiple Choice

1. An agreement between the bank and customer to exchange currencies on a specified future date at a specified rate that is agreed upon today.
2. A contract between two parties that is settled with foreign currency at the current market rate.
3. An agreement between the bank and customer to exchange currencies on a specified future date at the spot rate in effect at that time.
4. An agreement to settle a foreign currency denominated receivable or payable on a specified date at the current market rate.

4- Which of the following statements pertaining to the functional currency translation (FCT) method is INCORRECT?

Multiple Choice

1. Foreign currency monetary items must be translated at the closing rate the end of each reporting period.
2. It is appropriate to use a weighted average of the historical rates throughout a period to translate foreign currency nonmonetary items as long as the exchange rates do not fluctuate significantly.
3. Any exchange adjustments resulting from the translation of monetary items at rates different from those used on initial recognition are recognized in other comprehensive income.
4. The FCT method produces translation results consistent with the valuation practices for domestic operations.

5- What indicator(s) does management primarily rely on to determine the functional currency?

Multiple Choice

1. Where the sales, labour and materials occur or are obtained and in which currency.
2. What stock exchange the company is listed on.
3. The currency in which the debt and equity instruments are issued.
4. The currency in which excess cash is retained.

6- At the end of each reporting period, monetary items denominated in a foreign currency must be translated at what rate?

Multiple Choice

1. The exchange rate in effect at the time of settlement of the contract.
2. The historical rate.
3. The closing rate.
4. The forward contract rate.