Deck 14: Financial Instrumentsdisclosures

Question 1

Georgia Peaches Entity has significant accounts receivable denominated in the Euro. What type of risk is assumed by Georgia Peaches as a result?

A) Interest rate risk
B) Liquidity risk
C) Other price risk
D) Currency risk

Answer 1

Currency risk

Question 2

Fairfax is a manufacturer of televisions and touch screens. Fairfax utilizes a proprietary chemical manufacturing technology to make its high-definition displays. Fairfax is running low on cash and has several overdue accounts payable. Cabot Chemical is particularly concerned because of Fairfax's inability to pay. In addition, Fairfax must pay its loans back to the bank immediately because of violated loan covenants. What type of risk is Fairfax experiencing?

A) Interest rate risk
B) Liquidity risk
C) Other price risk
D) Credit risk

Answer 2

Liquidity risk

Question 3

Refer to question three. On the other side of Fairfax is Cabot Chemical and the bank which are both concerned about their financial relationship with Fairfax. What type of risk are Cabot Chemical and the bank concerned about?

A) Interest rate risk
B) Liquidity risk
C) Other price risk
D) Credit risk

Answer 3

Credit risk

Question 4

Market Risk consists of which of the following types of risks?
i. Credit risk
ii. Currency risk
iii. Interest rate risk
iv. Liquidity risk
v. Other price risk

A) I, II, and V
B) II and III
C) II, III, and V
D) I and IV
E) All of the above

Question 5

Palma Reale is an Italian manufacturer of pasta. Due to worsening droughts, Palma Reale has decided to hedge its risks associated with purchasing durum wheat by purchasing wheat futures. What risk is Palma Reale hedging against?

A) Credit risk
B) Currency risk
C) Price risk
D) Other price risk

Question 6

For which of the following is an entity reporting under IFRS 7 not required to disclose carrying amounts and information about risk in the statement of financial position or in the notes?

A) Common shares held for trading
B) Convertible bonds held to maturity
C) Fair value hedge
D) Cash flow hedge
E) All of the above must be reported under IFRS 7

Question 7

What classification of security under U.S. GAAP is most similar to the IFRS classification, financial assets measured at fair value through other comprehensive income (FVTOCI)?

A) Available for sale (AFS)
B) Held-to-maturity (HTM)
C) Trading
D) None of the above
E) The amount reclassified

Question 8

Which of the following are entities not required to disclose qualitatively for financial instruments?

A) Exposures to risk
B) How the risk arose
C) How the risk is measured
D) The entity's propensity for risk
E) How the risk can be managed

Question 9

Which of the following are entities not required to disclose quantitatively for financial instruments?

A) Concentrations of risk
B) Collateral held to minimize credit risk
C) Quantitative data summarizing exposure to risk
D) Sensitivity analysis for each type of market risk
E) Exposure to credit risk less any pledged collateral

Question 10

An entity is must disclose the amount of any financial assets that it has pledged as collateral, but is not required to disclose the terms and conditions of the collateral agreement.

Question 11

When financial assets are impaired due to credit losses and a separate account is maintained, an entity should provide a reconciliation for that separate account of the beginning and ending balance for the period for each class of financial assets.

Question 12

IFRS 7 requires an entity to disclose the fair value for each class of financial assets and financial liabilities so that it can be compared with its carrying amount.

Question 13

When reporting fair values, the entity should group financial assets and financial liabilities into classes and should offset them only to the degree to which the carrying amounts are offset in the statement of financial position.

Question 14

An entity should provide both quantitative and qualitative disclosures that enable users of the financial statements to evaluate the nature and extent of risks from financial instruments to which the entity is exposed at the end of the reporting period.

Question 15

The primary disclosure required for liquidity risk is a maturity analysis for both derivative and non-derivative financial liabilities.

Question 16

An entity is required to prepare a sensitivity analysis for each type of market risk (currency, interest rate and other price risk) to which the entity is exposed at the reporting date.

Question 17

Determine the type of risk that the entity in each scenario is subject to:
-Shoshone Entity has an allowance for doubtful accounts.

Question 18

Determine the type of risk that the entity in each scenario is subject to:
-Lac-de-Lewis Entity has a policy mandating a cash balance of 25% of short-term debt.

Question 19

Determine the type of risk that the entity in each scenario is subject to:
-Waukegan Entity is concerned about the value of its mortgage-backed securities.

Question 20

Determine the type of risk that the entity in each scenario is subject to:
-Pawhuska Entity, which makes cotton clothing, is assessing the impact of a hurricane that destroyed a large portion of the cotton crop.

Question 21

Determine the type of risk that the entity in each scenario is subject to:
-Kenosha Entity, an American entity, has accounts receivable that are denominated in the British Pound.

Question 22

Determine the type of risk that the entity in each scenario is subject to:
-Kankakee Entity is trying to determine the best time to purchase real estate.

Question 23

Determine the type of risk that the entity in each scenario is subject to:
-Targhee Entity violated important debt covenants.

Question 24

Determine the type of risk that the entity in each scenario is subject to:
-Huron Entity is setting up a €15 million revolving line of credit with .

Question 25

Paul Bunyan Motors produces an SUV specially suited for logging trails in the middle of nowhere called the Blue Ox. Paul Bunyan Motors faces risk from several of its financial instruments. Determine how each of the following financial instruments would be classified under IFRS 7:
-A hedge against the risks associated with an account payable that is denominated in a foreign currency.

Question 26

Paul Bunyan Motors produces an SUV specially suited for logging trails in the middle of nowhere called the Blue Ox. Paul Bunyan Motors faces risk from several of its financial instruments. Determine how each of the following financial instruments would be classified under IFRS 7:
-A bond purchased at a premium and held to maturity.

Question 27

Paul Bunyan Motors produces an SUV specially suited for logging trails in the middle of nowhere called the Blue Ox. Paul Bunyan Motors faces risk from several of its financial instruments. Determine how each of the following financial instruments would be classified under IFRS 7:
-An option to purchase blue paint.

Question 28

Paul Bunyan Motors produces an SUV specially suited for logging trails in the middle of nowhere called the Blue Ox. Paul Bunyan Motors faces risk from several of its financial instruments. Determine how each of the following financial instruments would be classified under IFRS 7:
-An interest rate swap to hedge against the volatility in a variable rate loan.

Question 29

Define the following terms:
-Credit risk.

Question 30

Define the following terms:
-Currency risk.

Question 31

Define the following terms:
-Interest rate risk.

Question 32

Define the following terms:
-Liquidity risk.

Question 33

Define the following terms:
-Market risk.

Question 34

Define the following terms:
-Other price risk.