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Alternative Currency Translation Methods Companies with international operations will have foreign-currency-denominated assets and liabilities, revenues, and expenses. However, because home country investors and the entire financial community are interested in home currency values, the foreign currency balance sheet accounts and income statement must be assigned HC values. In particular, the financial statements of an MNC’s […]

Operating Exposure Operating exposure measures the extent to which currency fluctuations can alter a company’s future operating cash flows—that is, its future revenues and costs. Any company whose revenues or costs are affected by currency changes has operating exposure, even if it is a purely domestic corporation and has all its cash flows denominated in

Transaction Exposure Transaction exposure results from transactions that give rise to known, contractually binding future foreign-currency-denominated cash inflows or outflows. As exchange rates change between now and when these transactions settle, so does the value of their associated foreign currency cash flows, leading to currency gains and losses. Examples of transaction exposure for a U.S.

Comparison of Translation, Transaction, and Operating Exposures Transaction Exposure Transaction exposure results from transactions that give rise to known, contractually binding future foreign-currency-denominated cash inflows or outflows. As exchange rates change between now and when these transactions settle, so does the value of their associated foreign currency cash flows, leading to currency gains and losses.

Translation Exposure Translation exposure, also known as accounting exposure, arises from the need, for purposes of reporting and consolidation, to convert the financial statements of foreign operations from the local currencies (LC) involved to the home currency (HC). If exchange rates have changed since the previous reporting period, this translation, or restatement, of those assets,

Alternative Measures of Foreign Exchange Exposure The three basic types of exposure are translation exposure, transaction exposure, and operating exposure. Transaction exposure and operating exposure combine to form economic exposure. Exhibit 10.1 illustrates and contrasts translation, transaction, and operating exposure. As can be seen, these exposures cannot always be neatly separated but instead overlap to

Measuring and Managing Translation and Transaction Exposure The stream of time sweeps away errors, and leaves the truth for the inheritance of humanity. George Brandes LEARNING OBJECTIVES • To define translation and transaction exposure and distinguish between the two • To describe the four principal currency translation methods available and to calculate translation exposure using

The Oil Drilling Case An oil company is attempting to decide whether to drill for oil on a particular site. There are three possible states of nature: 1 No oil (state of nature S1, which we will denote as none) 2 Some oil (state of nature S2, which we will denote as some) 3 Much

what is the probability that the person actually has AIDS? If we administer the test to a randomly selected American (who may or may not have AIDS) and the person receives a positive test result, what is the probability that the person actually has AIDS? This probability is The idea behind Bayes’ Theorem is that

Hypothesis test for a population variance Hypothesis test for a population variance in the camshaft situation of Section 9.7 on pages 383 and 384: • Enter a label (in this case Depth) into cell A1, the sample variance (here equal to .0885) into cell A2, and the sample size (here equal to 30) into cell