Advanced Accounting - Chapter 9: Foreign Currency Transactions and Hedging Foreign Exchange Risk

The price at which foreign currency can be sold for U.S. dollars is known as the foreign currency

exchange rate.

The current or _______ exchange rate is the price at which a foreign currency can be purchased or sold today.

Spot

The value of the euro can best be described as being

allowed to float freely against other currencies.

The exchange rate mechanism for the U.S. dollar can best be described as being

allowed to float independently of central bank intervention.

A transaction exposure to foreign exchange risk exists when an exporter

allows a foreign customer to pay in a foreign currency and allows the customer time to pay for its purchases.

A decrease in the direct quote in U.S. dollars for a foreign currency from one day to the next means that the foreign currency has ____________ against the U.S. dollar.

depreciated

When the U.S. dollar price for a foreign currency decreases from one date to the next, the foreign currency is said to have

depreciated against the U.S. dollar.

The foreign currency ___________ rate is the price at which the foreign currency can be acquired or sold.

exchange

The exchange rate today at which a foreign currency can be purchased or sold on a specific future date is the

forward rate.

A foreign currency call option gives the holder of the option the right but not _________ the to buy foreign currency in the future at a predetermined price.

obligation

A foreign currency option giving its holder the right to sell foreign currency in the future at a predetermined price is a

put option.