Business

Foreign Exchange Risk and Economic Exposure The most important aspect of foreign exchange risk management is to incorporate currency change expectations into all basic corporate decisions. In performing this task, the firm must know what is at risk. However, there is a major discrepancy between accounting practice and economic reality in terms of measuring exposure, […]

Two comments are appropriate here. 1. Fluctuations in reported earnings in the preceding example are reduced significantly under FASB 52 when the local currency is the functional currency, as compared with the case when the U.S. dollar is the functional currency. 2. Key financial ratios and relationships—such as net income-to-revenue, gross profit, and debt-to-equity—are the

Application of FASB No. 52 Sterling Ltd., the British subsidiary of a U.S. company, started business and acquired fixed assets at the beginning of a year when the exchange rate for the pound sterling was £1=$1.50. The average exchange rate for the period was $1.40, the rate at the end of the period was $1.30,

Factors Indicating the Appropriate Functional Currency Companies will usually explain in the notes to their annual report how they accounted for foreign currency translation. A typical statement is that found in Dow Chemical’s 1999 Annual Report: The local currency has been primarily used as the functional currency throughout the world. Translation gains and losses of

Statement of Financial Accounting Standards No. 52 The current translation standard— Statement of Financial Accounting Standards No. 52 (FASB 52)—was adopted in 1981.10 According to FASB-52, firms must use the current rate method to translate foreign-currency-denominated assets and liabilities into dollars. All foreign currency revenue and expense items on the income statement must be translated

Which hedging strategy (if any) appears to underlie their hedging activities? What are the latest FASB pronouncements dealing with currency translations? 3. Review the annual reports on the Web sites of three of the multinational companies listed in www.reportgallery.com. a. Which types of currency exposure are these companies hedging? b. Which hedging techniques are they

Which hedging techniques are they using? What are the latest FASB pronouncements dealing with currency translations? 3. Review the annual reports on the Web sites of three of the multinational companies listed in www.reportgallery.com. a. Which types of currency exposure are these companies hedging? b. Which hedging techniques are they using? c. Which hedging strategy

Which types of currency exposure are these companies hedging? What are the latest FASB pronouncements dealing with currency translations? 3. Review the annual reports on the Web sites of three of the multinational companies listed in www.reportgallery.com. a. Which types of currency exposure are these companies hedging? b. Which hedging techniques are they using? c.

What are the latest FASB pronouncements dealing with currency translations? 3. Review the annual reports on the Web sites of three of the multinational companies listed in www.reportgallery.com. a. Which types of currency exposure are these companies hedging? b. Which hedging techniques are they using? c. Which hedging strategy (if any) appears to underlie their

What exchange rates (year-end or average) did GE use to translate its asset and liability accounts and revenue and expense items? Go to General Electric’s home page (www.ge.com) and find its latest annual report. What is General Electric’s accumulated translation adjustment? Does General Electric use any functional currencies other than the dollar? What was GE’s