Best answer: What has occurred when one company arranges to buy a foreign currency sometime in the future?

What has occurred when one company purchases the right to buy?

What has occurred when one company purchases the right to buy a foreign currency at some time in the future at an exchange rate quoted for today? The company has acquired a call option.

What is a foreign currency commitment?

Foreign Currency Commitment means, with respect to each Lender, the commitment of such Lender to make Foreign Currency Loans in an aggregate principal amount at any time outstanding of up to such Lender’s Foreign Currency Commitment Percentage of the Foreign Currency Committed Amount.

What is one problem in translating retained earnings using either the temporal or current rate method?

What is one problem in translating retained earnings using either the temporal or current rate method? A. There is no problem, since both methods use the historic rate method for stockholders’ equity accounts.

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How do you account for foreign currency forward contracts?

Record a forward contract on the contract date on the balance sheet from the seller’s perspective. On the liability side of the equation, you would credit the Asset Obligation for the spot rate. Then, on the asset side of the equation, you would debit the Asset Receivable for the forward rate.

What happens when one company acquires another?

When one company acquires another, the stock price of the acquiring company tends to dip temporarily, while the stock price of the target company tends to spike. The acquiring company’s share price drops because it often pays a premium for the target company, or incurs debt to finance the acquisition.

Why do companies buy other companies?

Companies acquire other companies for various reasons. They may seek economies of scale, diversification, greater market share, increased synergy, cost reductions, or new niche offerings.

What is currency future contract?

Currency futures are a exchange-traded futures contract that specify the price in one currency at which another currency can be bought or sold at a future date. … Currency futures can be used to hedge other trades or currency risks, or to speculate on price movements in currencies.

How does foreign exchange affect sales?

Changes in exchange rates can have a significant impact on the economy . A UK business that exports products will benefit from a fall in the value of the pound. Overseas firms will receive more UK pounds for their money, so they will pay less for the UK’s products.

What is importance of foreign exchange market?

Foreign Exchange Markets helps in determining the value of foreign savings. It is a marketplace where the foreign money is bought and sold and we can also say it is a type of institutional arrangement where the foreign currencies are bought and sold.

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What is the temporal method of foreign currency translation?

The temporal method (also known as the historical method) converts the currency of a foreign subsidiary into the currency of the parent company. This technique of foreign currency translation is used when the local currency of the subsidiary is not the same as the currency of the parent company.

What is the disappearing plant problem that is addressed by FASB ASC 830 foreign currency matters?

What is the “disappearing plant” problem that is addressed by FASB ASC 830, Foreign Currency Matters? B. High inflation can result in extreme decreases in the reported amounts for foreign fixed assets. How does FASB ASC 830, Foreign Currency Matters define a “highly inflationary economy?”

What are the major differences in translating liabilities between the current rate method and the temporal method?

The current rate method differs from the temporal (historical) method in that assets and liabilities are translated at current exchange rates as opposed to historical ones. This can create a high amount of translation risk, as the current exchange rate may change.

What is a foreign currency forward contract?

A currency forward is a binding contract in the foreign exchange market that locks in the exchange rate for the purchase or sale of a currency on a future date. A currency forward is essentially a customizable hedging tool that does not involve an upfront margin payment.

How does a forward sale agreement work?

In a forward contract, the buyer and seller agree to buy or sell an underlying asset at a price they both agree on at an established future date. This price is called the forward price. This price is calculated using the spot price and the risk-free rate. The former refers to an asset’s current market price.

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How does a forward currency contract work?

Broadly speaking, forward contracts are contractual agreements between two parties to exchange a pair of currencies at a specific time in the future. These transactions typically take place on a date after the date that the spot contract settles and are used to protect the buyer from fluctuations in currency prices.