Accounting for Foreign Currency Transactions And Hedging Foreign Exchange Risk Multiple Choice 1. A discount or premium on a forward contract is deferred and included in the measurement of the related foreign currency transaction if the contract is classified as a a. hedge of a net investment in a foreign entity. b. hedge of an exposed asset or liability position. c. hedge of an identifiable foreign currency commitment. d. contract acquired to speculate in the movement of exchange rates. 2. The discount
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output‚ it needs to deal only in the domestic currency. As companies try to increase their international presence‚ either by undertaking international trade or by establishing operations in foreign countries‚ they start dealing with people and firms in various nations. Since different countries have different domestic currencies‚ the question arises as to which currency should the trade be settled in. The settlement currency may either be the domestic currency of one of the parties to the trade‚ or may
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system: The Gold Standard The Bretton-Woods system Floating exchange rate The Gold Standard The Gold Standard last from1870 to 1914 and from 1918 to1939. Under this system the countries fixed the price of their currency in terms of gold. All the currency ’s prices were fixed in relation to the official gold reserve. The Gold Standard faced its first crisis during the first World War. Most of the countries to finance the cost of the war abandoned the gold standard and by doing
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Woods‚ during which the system actually operated as envisioned under full convertibility‚ lasted only from 1959 through 1968. Associated with steady growth in world production and trade‚ these nine years and the preceding decade of movement toward currency convertibility are considered something of a golden age in contrast to the six-year debacle of the interwar gold standard. Yet‚ from the moment of full convertibility on current account transactions in 1959‚ the steady growth of official and private
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countries in Europe experiencing similar difficulties? How could Europe get themselves into this position? Greece is not doing well. Some people want to continue using the euro which a currency provided by the European Central Bank while others want to return to the drachma. The drachma is the fiat currency previously issued by the Greek central bank. This is causing a major uproar in Greece. Politically they are also crumbling. The leaders are persistent with rejecting economic policies that
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Publication Services. Charles S. Gardner prepared this version. The Pros and Cons of Full Dollarization Since the end of the Bretton Woods system of fixed exchange rates nearly thirty years ago‚ the old dilemma facing countries of finding workable currency exchange arrangements has become more challenging‚ and the choices have become more varied. The decision about which exchange rate system to adopt has become more difficult as world trade and capital markets have become more integrated. New problems
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International Trade and Finance Speech ECO/372 March 10‚ 2014 International Trade and Finance Speech Good evening ladies and gentlemen: Today I will be speaking to you about international trade and foreign exchange rates. This has been something has been going on throughout history and over the years there have been many market structures and international trades. As all of you already know‚ imports can be brought in from many countries. During the process‚ the government will usually set
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different unit of money‚ which is called as currency. Currency is a medium that is used in the world to be the media as payments. Each country have their own currency‚ some small country are using the same currency as their surroundings e.g. USA – US Dollar (USD); Germany‚ Spain‚ Greece‚ etc. – Euro (EUR); UK – Poundsterling (GBP); Singapore – Singapore Dollar (SGD); Australia – Australia Dollar (AUD). Therefore one currency will be related to the other currency in the other country‚ in other word‚ if
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CHAPTER 10 Measuring and Managing Translation and Transaction Exposure EASY (definitional) 10.1 ___________ a certain currency exposure means establishing an offsetting currency position so that the gain or loss from the exposure on the original currency is exactly offset buy the gain or loss from the currency hedge. a) Arbitraging b) Cross-hedging c) Hedging d) Risk shifting Ans: c Section: Alternative measures of foreign exchange exposure Level: Easy 10.2 Hedging cannot provide protection
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official changes in the value of a country’s currency relative to other currencies. Devaluation‚ the deliberate downward adjustment in the official exchange rate‚ reduces the currency’s value; in contrast‚ a revaluation is an upward change in the currency’s value. Devaluation is a reduction in the value of a currency with respect to those goods‚ services or other monetary units with which that currency can be exchanged. When a government devalues its currency‚ it is often because the interaction of
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