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1. It is the risk that one party to a financial instrument will cause a financial loss for the other party
by failing to discharge an obligation.
a. Price risk c. Credit risk
b. Market risk d. Liquidity risk

2. The risk that the fair value or future cash flows of a financial instrument will fluctuate because of
changes in market prices.
a. Price risk c. Credit risk
b. Market risk d. Liquidity risk

3. According to PFRS 7, it is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market interest rates.
a. Interest rate risk c. Fair value risk
b. Currency risk d. Other price risk

4. It is the risk that an entity will encounter difficulty in meeting obligations associated with
financial liabilities that are settled by delivering cash or another financial asset.
a. Price risk c. Credit risk
b. Market risk d. Liquidity risk

5. According to PFRS 7, it is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in foreign exchange rates.
a. Interest rate risk c. Fair value risk
b. Currency risk d. Other price risk

6. It is an agreement between two parties to exchange a specified amount of a commodity, security,

or foreign currency at a specified date in the future at a pre-agreed price.
a. forward contract c. swap
b. futures contract d. option

7. Which of the following contracts is not considered a derivative instrument?

a. futures contract c. option contract
b. forward contract d. lease contract

8. It is a contract in which two parties agree to exchange payments in the future based on the
movement of some agreed-upon price or rate.
a. forward contract c. swap
b. futures contract d. option

9. It is a contract giving the holder the right, but not the obligation, to buy or sell an asset at a
specified price any time during a specified period in the future.
a. forward contract c. swap
b. futures contract d. option

10. It is a contract traded on an exchange that allows an entity to buy or sell a specified quantity of
commodity or a financial security at a specified price on a specified future date.
a. forward contract c. swap
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b. futures contract d. option

Use the following information for the next eight questions:

On December 15, 20x1, ABC Co. sold goods to a Japanese firm for 4,000,000 yens. ABC Co. was
concerned about the fluctuation in the Japanese yen, so on this date, ABC Co. entered into a 30-day
forward contract to sell 4,000,000 yens for ₱1,880,000 to a bank at the forward rate of ₱0.47.

Relevant rates are shown below:

  Dec. 15, 20x1 Dec. 31, 20x1 Jan. 15, 20x2
Spot rate ₱0.48 ₱0.49 ₱0.46
Forward rate ₱0.47 ₱0.485 ₱0.46

11. The entry to record the hedging instrument on December 15, 20x1 includes
a. a debit to accounts receivable for ₱1,880,000
b. a credit to sales for ₱1,880,000
c. both a and b
d. none

12. How much is the FOREX gain (loss) on foreign currency transaction on December 31, 20x1?
a. 40,000 b. (40,000) c. 60,0000 d. (60,000)

13. How much is the gain (loss) on change in fair value of the derivative on December 31, 20x1?
a. 40,000 b. (40,000) c. 60,0000 d. (60,000)

14. The derivative asset (liability) to be included in the December 31, 20x1 statement of financial
position is
a. 1,960,000 b. (1,920,000) c. 60,0000 d. (60,000)

15. How much is the FOREX gain (loss) on foreign currency transaction on January 15, 20x2?
a. 120,000 b. (120,000) c. 100,0000 d. (100,000)

16. How much is the gain (loss) on change in fair value of the derivative on January 15, 20x2?
a. 120,000 b. (120,000) c. 100,0000 d. (100,000)

17. If the forward contract is settled on a net cash basis, how much is the net cash settlement receipt
(payment)?
a. 40,000 b. (40,000) c. 100,000 d. 0

18. The total net effect of the two contracts in 20x1 and 20x2 profit or loss is – gain (loss)
a. 40,000 b. (40,000) c. 100,000 d. 0

Use the following information for the next five questions:

ABC Co. expects the value of yens to decrease in the next 30 days. Accordingly, on December 15,
20x1, ABC Co. enters into a 30-day forward contract to sell 4,000,000 yens at the forward rate of
₱0.47. On December 31, 20x1, the forward rate was ₱0.485 and by January 15, 20x2, the spot rate
moved to ₱0.46.
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19. The entry to record the forward contract on December 15, 20x1 includes
a. a debit to forward contract for ₱60,000
b. a credit to forward contract for ₱60,000
c. a debit to loss on forward contract for ₱60,000
d. none

20. How much is the gain (loss) on change in fair value of the derivative on December 31, 20x1?
a. 60,000 in profit or loss c. (60,0000) in OCI
b. (40,000) in OCI d. (60,000) in profit or loss

21. The derivative asset (liability) to be included in the December 31, 20x1 statement of financial
position is
a. 1,960,000 b. (1,920,000) c. 60,0000 d. (60,000)

22. How much is the gain (loss) on change in fair value of the derivative on January 15, 20x2?
a. 120,000 b. (120,000) c. 100,000 d. (100,000)

23. How much is the net cash settlement receipt (payment) on January 15, 20x2?
a. 40,000 b. (40,000) c. 1,840,000 d. (1,840,000)

Use the following information for the next seven questions:

On December 15, 20x1, ABC Co. purchased goods from a Korean firm for 40,000 wons. ABC Co. was
concerned about the fluctuation in the Korean won, so on this date, ABC Co. entered into a 30-day
forward contract to buy 40,000 wons for ₱49,600 from a bank at the forward rate of ₱1.24.

Relevant rates are shown below:

  Dec. 15, 20x1 Dec. 31, 20x1 Jan. 15, 20x2
Spot rate 1.20 1.26 1.30
Forward rate 1.24 1.27 1.30

24. The purchased inventory shall be recognized at

a. 48,000 b. 49,600 c. 50,400 d. 50,800

25. The derivative asset (liability) to be included in the December 31, 20x1 statement of financial
position is
a. 2,400 b. (2,400) c. 1,200 d. (1,200)

26. The adjustment to the inventory account on December 31, 20x1 is – increase (decrease)
a. 2,400 b. (2,400) c. 1,200 d. 0

27. How much is the FOREX gain (loss) on foreign currency transaction on January 15, 20x2?
a. (2,400) b. (1,600) c. 1,200 d. (1,200)

28. How much is the gain (loss) on change in fair value of the derivative on January 15, 20x2?
a. 1,200 b. (1,200) c. 1,600 d. (1,600)
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29. The total net effect of the two contracts on profit or loss in 20x2 is – gain (loss)
a. (1,600) b. (400) c. 1,600 d. 0

30. Assuming the forward contract is settled on a net cash basis, how much is the net cash
settlement receipt (payment) on January 15, 20x2?
a. 1,600 b. (400) c. 2,400 d. (2,400)
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