Question 1 If the international Fisher effect holds, based on Blanc's forecasts, the current one-year risk-free interest rate in Europe should be closest to: A. 0.25%. B. 2.25%. C. 4.25%. D. 6.25%.
Correct answer = C
"Foreign Exchange Parity Relations," Bruno Solnik and Dennis McLeavey
2008 Modular Level II, Vol. 1, pp. 564-566
Study Session 4-19-h
discuss the international Fisher relation and calculate and interpret 1) interest rates exactly and by linear approximation, given expected inflation rates and the assumption that the international Fisher relation holds, 2) the real interest rate, given interest rates and inflation rates and the assumption that the international Fisher relation holds, and 3) the international Fisher relation, and its linear approximation, between interest rates and expected inflation rates
If the international Fisher relation holds, then the real rate in Europe is equal to the real rate in the United States. Given rUS = 2.25 and IUS = 2, we calculate the real U.S. rate, ρ , to be equal to 2.25 - 2.00 = 0.25 (where IUS is the expected rate of inflation in the U.S.). We now know that the European real rate is ρ = 0.25%. Based on IEurope = 4%, we have rEurope = ρ + expected IEurope = 0.25 + 4.0 = 4.25%. Question 2 Based on Exhibit 1, funded status of Duban's pension plan under U.S. GAAP for 2007 ($ millions) would be closest to: A. 1,256 liability. B. 681 liability. C. 681 asset. D. 1,256 asset.
Correct answer = A
"Understanding Retirement Benefit Accounting and Disclosures for Financial Analysis," Thomas R. Robinson, Paul Munter, and Julia Grant
2008 Modular Level II, Vol. 2, pp. 122-124
Study Session 6-24-e
calculate the underlying economic liability (or asset) of a company based upon pension and other post-employment benefit disclosures
The pension liability is calculated as follows: Plan Assets | 443 | Less: PBO | (1,699) | Funded Status - (deficit) | (1,256) |
Question 3 Based on Exhibit 1, the pension expense ($ millions) that would be reported on Duban's 2007 income statement under U.S. GAAP would be closest to: A. 187. B. 225. C. 230. D. 317.
Correct answer = B
"Understanding Retirement Benefit Accounting and Disclosures for Financial Analysis," Thomas R. Robinson, Paul Munter, and Julia Grant
2008 Modular Level II, Vol. 2, pp. 130-132
Study Session 6-24-b
describe the components of a company's defined-benefit pension expense and explain the impact of plan assumptions on that pension expense
The pension expense is calculated as follows: Service Cost | 86 | Interest Cost | 147 | Expected Return on Plan Assets | (46) | Amortization of Unrecognized Prior Service Cost | 23 | Amortization of Unrecognized loss | 15 | Pension Expense | $225 |
Question 4 Based on Exhibit 1, the underlying economic pension expense ($ millions) for Duban for 2007 would be closest to: A. 187. B. 192. C. 233. D. 274.
Correct answer = D
"Understanding Retirement Benefit Accounting and Disclosures for Financial Analysis," Thomas R. Robinson, Paul Munter, and Julia Grant
2008 Modular Level II, Vol. 2, pp. 124, 130
Study Session 6-24-f
calculate the underlying economic pension and other post-employment expense (income) based upon disclosures after removing the effect of amortized items and smoothing mechanisms
The economic pension expense is calculated as follows: Service Cost | 86 | Interest Cost | 147 | Actual Return on Plan Assets | 41 | Economic Pension Expense | 274 |
Question 5 Based on Exhibit 2, under U.S. GAAP Duban's 2007 translation gain on Kerwin's identifiable assets resulting from exchange rate changes ($ millions) was closest to: A. 133. B. 165. C. 197. D. 216.
Correct answer = C
"Analysis of Multinational Operations," Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level II, Vol. 2, pp. 186-189
Study Session 6-26-d, f
analyze and evaluate the effects of the all-current and temporal methods on the parent company's balance sheet and income statement;
calculate the translation effects of the all-current and temporal methods of foreign currency translation
To ascertain how much of the change in identifiable assets resulted from exchange rate changes rather than an actual asset increase in krona, the year-end rate is used to translate assets into krona. | 2007 | 2006 | Assets (in $ millions) | $3,055 | $2,350 | x Year-end exchange Rate | 6.40 | 6.85 | = Assets (krona in millions) | 19,552 | 16,097.50 |
The translation gain on identifiable assets is computed as:
Beginning Assets (krona) x
(1/Yr-end rate - 1 / begin Yr-rate) | 16,097.50 X [1 / 6.40 - 1/6.850] = | $165.23 | Change in Assets (krona) x
(1/Yr-end rate - 1 / avg rate) | (19,552 - 16,097.50) X [1 / 6.40 - 1/6.80] = | 31.75 | Translation Gain on Identifiable Assets | | $196.98 |
Question 6 Based on Exhibit 2, the effect of exchange rate changes (exchange rate flow effect) on Kerwin's 2007 net sales ($ millions) was closest to: A. 361 B. 383. C. 405. D. 429.
Correct answer = D
"Analysis of Multinational Operations," Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level II, Vol. 2, pp. 188-191
Study Session 6-26-a
distinguish between the impact of changes in local currency sales and changes in exchange rates on the translated sales of the subsidiary and parent company
"The exchange rate effect is estimated by multiplying the income statement component (in local currency) by the change in the average exchange rate" (p. 189). Multiplying Kerwin's net sales in dollars by the average rate produces net sales in millions of krona.
2007 Net Sales (krona) = ($ Net Sales) x (Average Rate) = $5,500 x 6.800 = $37,400
Exchange Rate Effect = Net Sales (krona) x change in average exchange rate
$429 = $37,400 x (1 / 6.800 - 1 / 7.375) Question 7 Based on Exhibit 2, the operational effect on Kerwin's 2007 operating income should be computed by multiplying the change in operating income (in SEK) by the: A. 2007 average rate. B. 2006 average rate. C. change in the ending exchange rates. D. change in the average exchange rates.
Correct answer = B
"Analysis of Multinational Operations," Gerald I. White, Ashwinpaul C. Sondhi, and Dov Fried
2008 Modular Level II, Vol. 2, pp. 188-191
Study Session 6-26-d, f
analyze and evaluate the effects of the all-current and temporal methods on the parent company's balance sheet and income statement;
calculate the translation effects of the all-current and temporal methods of foreign currency translation "The operational effect is estimated by multiplying the change in the income statement component (in local currency) by the previous period's average exchange rate" (p. 189). Multiplying Kerwin's operating income in dollars by the average rate produces operating income in millions of krona. For example:
2007 Operating Income (krona) = $ Operating Income x 2007 Average Rate =
$3,850 x 6.800 = $26,180. | 
发表于 2008-5-20 22:56
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