Foreign Currency Transactions
the Following Table Summarizes the Facts of Five

question 67

Essay

Foreign currency transactions
The following table summarizes the facts of five independent cases (labeled a through e) of American companies engaging in credit transactions with foreign corporations while the foreign exchange rate is fluctuating: $$\begin{array} { | c | c | c | c | c | } \hline { \text { Column } } \\\hline & \text { Type of Credit } & \text { Currency Used in } & \text { Exchange Rate } & \text { Effect on } \\\hline & \text { Transaction } & \text { Contract } & \text { Direction } & \text { Income } \\\hline \text { Case } & 1 & 2 & 3 & 4 \\\hline & & & & \\\hline \text { (a.) } & \text { Sales } & \text { Foreign currency } & \text { Falling } & \\\hline \text { (b.) } & \text { Purchases } & \text { U.S. dollars } & \text { Rising } & \\\hline \text { (c.) } & & \text { Foreign currency } & \text { Rising } & \text { Loss } \\\hline \text { (d.) } & \text { Sales } & & \text { Falling } & \text { No effect } \\\hline \text { (e.) } & \text { Purchases } & \text { Foreign currency } & & \text { Gain } \\\hline & & & & \\\hline\end{array}$$ Instructions:
Notice that for each case, a blank space has been left in one of the four columns. You are to fill this blank space after evaluating the information about the case provided in the other three columns. The content of each column and the word or words that you should enter in the blank spaces are described below:
Column 1 indicates the type of credit transaction in which the American company engaged with the foreign corporations. The answer entered in this column should be either "Sales" or "Purchases."
Column 2 indicates the currency in which the invoice price is stated. The answer may be either "U.S. dollars" or "Foreign currency."
Column 3 indicates the direction in which the foreign currency exchange rate has moved between the date of the credit transaction and the date of settlement. The answer in this column may be either "Rising" or "Falling."
Column 4 indicates the effect of the exchange rate fluctuation upon the income of the American company. The answers entered in this column are to be selected from the following: "Gain," "Loss," or "No effect."

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Definitions:

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