International Accounting Quiz

When a currency is allowed to increase or decrease freely according to market forces, the currency is said to:

• be pegged to another currency.

• be less valuable.

• have independent float.

• devalue.

Which financial derivative gives the holder the option to sell the foreign currency?

• Call option (buy foreign currency)

• Forward option

• Spot option

• Put option

What is foreign exchange risk exposure?

• The possibility of a loss because of changes in the value of a foreign currency

• Losses caused by paying for purchased goods in a foreign currency

• Losses caused by receiving payment in a foreign currency for goods sold

• All of the above

What is a foreign currency transaction?

• It is another name for an international transaction.

• It is a transaction that involves payment at a date sometime in the future.

• It is a business deal denominated in a currency other than a company's domestic currency.

• It is an economic event measured in a currency other than U.S. dollars.

The objective of the current rate method when translating financial statements is to:

• translate financial statements as if the subsidiary had been using the parent's currency

• translate financial statements as if the parent had been using the subsidiary's currency

• reflects that the parent's entire investment in a foreign subsidiary is exposed to exchange risk.

• None of the above

To calculate U.S. tax, what exchange rate must be used to translate foreign branch net income?

• Current rate

• Rate at the beginning of the year

• Average rate for the year

• Rate at the end of the year

Under International Accounting Standards Board rules, what method is required to account for foreign currency transactions?

• A one-transaction perspective must be used.

• The two-transaction perspective must be used.

• A sale is not recorded until payment is received and converted to U.S. dollars.

• A sale is not recorded until payment is received in the foreign currency.

Under U.S. tax law, what is a "resident?"

• A person living in the United States for 183 days or more in a year

• A person holding a "green card" from the U.S. Immigration and Naturalization Service

• A corporation organized in the United States

• All of the above

There are two primary taxes imposed on profits earned by corporations in international trade. What are they?

• Payroll tax and Corporate income tax

• Withholding tax and Corporate income tax

• Value-added tax and Withholding tax

• Value-added tax and Corporate income tax

Which of the following affects the effective corporate tax rate?

• Tax-based incentives

• Local corporate tax rate

• Method of determining taxable income

• All of the above