CFA Practice Question

There are 334 practice questions for this study session.

CFA Practice Question

Assume that a company has an accounts receivable of 1000 Euros. The receivable was created when the exchange rate was 1.05:$1. Now the exchange rate is 0.95:$1 and the receivable remains outstanding. Which of the following statement is true?
A. The company has realized a $100 exchange rate gain.
B. The company has an unrealized $100 exchange rate gain.
C. The company has an unrealized $100 exchange rate loss.
Explanation: The dollar equivalent of the Euro was $0.95 (1/1.05) when the receivable was created and is $1.05 (1/.95) now. Expressing the exchange rate in this form demonstrates that the receivable has increased in value. Since the receivable has not yet been collected, the gain is unrecognized.

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