Discuss any current financial issues that affect the operating environment of the MNC distibuting via export and explain how these issues affect the company’s foreign currency exposure
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Discuss any current financial issues that affect the operating environment of the MNC distibuting via export and explain how these issues affect the company’s foreign currency exposure
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- Functional currency is the currency that influences sales price, labour, material and other costs of a company’s goods and services. (a) Explain factors that should also be considered to determine the functional currency of a foreign operation. (b) Explain what will happen if a business transaction is denominated in foreign currency but reported in functional currency.Advise management the different hedging strategies that can be employed by a company against foreign exchange exposures.Summarize the impact of foreign exchange rates on the company’s financial statements. What risks do foreign exchange rates pose? Provide academically supported example(s) in your response.
- Which foreign exchange risk relates to the value of assets held in foreign currency on the statement of financial position of financial institutions which trades? a. Economic risk b. Transaction type risk c. Currency risk d. Translation riskAccounting for Foreign Currency Transactions: Accounting for foreign currency transactions involves recording and reporting financial transactions denominated in a currency other than the entity's functional currency. Here are the key steps involved in handling such transactions: **1. Identifying Foreign Currency Transactions: Definition: Foreign currency transactions occur when a business entity conducts financial transactions, such as sales, purchases, or investments, in a currency different from its functional currency. Examples: Buying goods from a foreign supplier, selling products to overseas customers, or borrowing funds in a foreign currency. **2. Determining the Functional Currency: Primary Currency: Each business entity designates a functional currency, which is the primary currency used in its day-to-day operations and financial reporting. Factors Considered: Factors such as the location of the entity's primary economic activities, the currency in…What are the relevant cash flows for an international investment:the cash flow produced by the subsidiary in the country whereit operates, or the cash flows in dollars that it sends to its parentcompany?
- One of the issues that companies need to address when dealing with foreign currencies is how fluctuations in that currency are handled. What is the dual transaction approach, accrual perspective? How might a company account for exchange rate fluctuations using this approach?What are the relevant cash flows for an international investment—the cash flowsproduced by the subsidiary in the country in which it operates or the cash flows indollars that it sends to its parent company? Explain.How important of international trade (imports and exports) to the world economy? What accounting issues arise for a company as a result of engaging in international trade (imports and exports)? Why might a company be interested in investing in an operation in a foreign country (foreign direct investment)?
- Summarize the impact of foreign exchange rates on the company’s financial statements. What risks do foreign exchange rates pose? Provide academically supported example(s) in your response. What are the two methods used to translate financial statements and how does the functional currency play a role in determining which method is used? Provide academic support in your response. Compose a hypothetical example to demonstrate the translation process using the two methods. Ensure all information is entered accurately.Which cash flows are important for an overseas investment: those generated by the subsidiary in the country in which it operates or those sent to the parent firm in dollars?Which of the following situation is NOT the case that a domestic company is exposed to foreign currency exchange risk? a. A firm commitment to enter into a foreign currency transaction. b. A forecasted foreign currency transaction that has a high probability of occurrence. c. An investment in a domestic subsidiary. d. An actual existing foreign currency transaction that results in recognition of assets or liabilities.