| Posted: 24 Jul 2010 at 14:18 | IP Logged
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Shore Co. records its
transactions in U.S. dollars. A sale of goods resulted in a receivable
denominated in Japanese yen, and a purchase of goods resulted in a
payable denominated in French francs. Shore recorded a
foreign exchange gain on collection of the receivable and an exchange
loss on settlement of the payable. The exchange rates are expressed as
so many units of foreign currency to one dollar.
Did the number of foreign currency units exchangeable
for a dollar increase or decrease between the contract and settlement
dates?
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Yen exchangeable for $1
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Francs exchangeable for $1
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 | Increase | Increase |
 | Decrease | Decrease |
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Since the quotes are number of foreign units per dollar it is considered an indirect quotation.
When there is a gain on a receivable that is
denominated in a foreign currency it means that the same number of
foreign currency units translates into more dollars. Thus the number of
units (Yen) per dollar declined.
When there is a loss on a payable it means that they
had to pay more dollars to settle the loan for the fixed amount of
Francs. Using an indirect quote this means that number of Francs per
dollar declined (takes more dollars to get the same amount of Francs).
Since both indirect quotations decreased this is the correct response.
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| Decrease | Increase |
| Increase | Decrease |
i am feeling confused...can someone explain this?..
__________________
BEC-74,82(lost credit),78
FAR-67,80
AUD-75
REG-68,72,79
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Topic: foreign currency
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