Matching Key TermsMatch the items in the left-hand column with the descriptions/explanatio...

Items

Descriptions/Explanations

1.

Direct exchange rate

A.

Exchange rate for immediate delivery of currencies.

2.

Indirect exchange rate

B.

Imports and exports whose prices are stated in a

3.

Managing an exposed

foreign currency.

net asset position

C.

The primary currency used by a company for performing

4.

Spot rates

its major financial and operating functions.

5.

Current rates

D.

U.S. companies prepare their financial statements

6.

Foreign currency

in U.S. dollars.

transaction gain

E.

1 European euro equals $0.65.

7.

Foreign currency

F.

A forward contract is entered into when receivables

transaction loss

denominated in European euros exceed payables

8.

Foreign currency

denominated in that currency.

transactions

G.

Accounts that are fixed in terms of foreign

9.

Hedging a firm

currency units.

commitment

H.

1 U.S. dollar equals 99 Japanese yen.

10.

Functional currency

I.

Spot rate on the entity’s balance sheet date.

11.

Speculating in a

J.

In an export or import transaction, the date that

foreign currency

foreign currency units are received or paid, respectively.

12.

Managing an exposed

K.

A forward contract is entered into when payables

net liability position

denominated in British pounds exceed receivables

13.

Settlement date

denominated in that currency.

1 4.

Denominated

L.

Reported when receivables are denominated in

15.

Reporting currency

European euros and the euro strengthens compared

to the U.S. dollar.

M.

A forward contract is entered into on May 1 that

hedges an import transaction to occur on July 1.

N.

Forward contract in which no hedging is intended.

O.

Reported when payables are denominated in Swiss

francs and the franc strengthens compared to

the U.S. dollar.