Foreign currency transactions and financial instrumentsArthik Davianti
The slides present lecture on the topic foreign currency transaction. This topic discuss types of foreign currency transactions and their accounting procedures. Further in the discussion financial instruments generated as hedge strategy to foreign exchange transactions is also presented. The slides are intended for students of the subject of Advanced Financial Accounting
Foreign currency transactions and financial instrumentsArthik Davianti
The slides present lecture on the topic foreign currency transaction. This topic discuss types of foreign currency transactions and their accounting procedures. Further in the discussion financial instruments generated as hedge strategy to foreign exchange transactions is also presented. The slides are intended for students of the subject of Advanced Financial Accounting
Used for MBA professional accounting class room presentation and it includes FASB rules and forex currency dealings details for purchase and sale of goods and services with foreign party.
The foreign exchange market or forex market as it is often called is the market in which currencies are traded.
Currency Trading is the world’s largest market consisting of almost trillion in daily volumes
The market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets.
There is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter.
This decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients.
The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency.
The first currency of a currency pair is called the “base currency,” while the second currency is called the counter currency. The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency.
Currency pairs can be thought of as a single unit that can be bought or sold. When purchasing a currency pair, the base currency is being bought, while the counter currency is being sold.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market.
It allows you to experience every step of currency trading including choosing currency pairs, deciding how much risk to take, tracking the time and dates of placed trades, deciding how long to stay in the trade, and when to exit the trade. It also allows the placing of stop and limit orders on trades.
Information about trading and specifically about how to use the online trading platform can be found on the FXCM webpage. In addition, FXCM offers FREE interactive online seminars that are extremely useful to both new and experienced currency traders.
Characteristics of foreign exchange
Its huge trading volume representing the largest asset class in the world leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed income;
The use of leverage to enhance profit and loss margins and with respect to account size.
Used for MBA professional accounting class room presentation and it includes FASB rules and forex currency dealings details for purchase and sale of goods and services with foreign party.
The foreign exchange market or forex market as it is often called is the market in which currencies are traded.
Currency Trading is the world’s largest market consisting of almost trillion in daily volumes
The market continues to rapidly grow. Not only is the forex market the largest market in the world, but it is also the most liquid, differentiating it from the other markets.
There is no central marketplace for the exchange of currency, but instead the trading is conducted over-the-counter.
This decentralization of the market allows traders to choose from a number of different dealers to make trades with and allows for comparison of prices. Typically, the larger a dealer is the better access they have to pricing at the largest banks in the world, and are able to pass that on to their clients.
The spot currency market is open twenty-four hours a day, five days a week, with currencies being traded around the world in all of the major financial centers.
All trades that take place in the foreign exchange market involve the buying of one currency and the selling of another currency simultaneously. This is because the value of one currency is determined by its comparison to another currency.
The first currency of a currency pair is called the “base currency,” while the second currency is called the counter currency. The currency pair shows how much of the counter currency is needed to purchase one unit of the base currency.
Currency pairs can be thought of as a single unit that can be bought or sold. When purchasing a currency pair, the base currency is being bought, while the counter currency is being sold.
Forex Capital Markets (FXCM) is an online currency trading firm that offers a free demo account to traders who are new and interested in the foreign exchange market.
It allows you to experience every step of currency trading including choosing currency pairs, deciding how much risk to take, tracking the time and dates of placed trades, deciding how long to stay in the trade, and when to exit the trade. It also allows the placing of stop and limit orders on trades.
Information about trading and specifically about how to use the online trading platform can be found on the FXCM webpage. In addition, FXCM offers FREE interactive online seminars that are extremely useful to both new and experienced currency traders.
Characteristics of foreign exchange
Its huge trading volume representing the largest asset class in the world leading to high liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed income;
The use of leverage to enhance profit and loss margins and with respect to account size.
International Financial Reporting Standards- IFRSDipu Thomas joy
International Financial Reporting Standards (IFRS) are designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries
CA Varun Sethi IndAS 21 - The effects of changes in foreign exchange ratesVarun Sethi
Presentation by CA Varun Sethi:
Explains through flowboxes - IndAS 21/ IAS 21 - The effects of changes in foreign exchange rates - especially
1. Accounting for Foreign Currency transactions and
2. Accounting for ‘Exchange differences’ on Foreign Currency transactions
3. Foreign currency translations for consolidation procedures (translation of account balances into reporting / presentation currency)
CHAPTER 11 Translation Exposure
What gets measured gets managed.
—Anonymous
LEARNING OBJECTIVES
■Examine how the process of consolidation of a multinational firm’s financial results creates translation exposure
■Illustrate both the theoretical and practical differences between the two primary methods of translating or remeasuring foreign currency-denominated financial statements
■Understand how translation can potentially alter the value of a multinational firm
■Explore the costs, benefits, and effectiveness of managing translation exposure
Translation exposure, the second category of accounting exposures, arises because financial statements of foreign subsidiaries—which are stated in foreign currency—must be restated in the parent’s reporting currency so that the firm can prepare consolidated financial statements. Foreign subsidiaries of U.S. companies, for example, must restate foreign currency-denominated financial statements into U.S. dollars so that the foreign values can be added to the parent’s U.S. dollar-denominated balance sheet and income statement. Using our example U.S. firm, Ganado, this is shown conceptually in Exhibit 11.1. This accounting process is called translation. Translation exposure is the potential for an increase or decrease in the parent’s net worth and reported net income that is caused by a change in exchange rates since the last translation.
Although the main purpose of translation is to prepare consolidated financial statements, translated statements are also used by management to assess the performance of foreign subsidiaries. While such assessment by management might be performed using the local currency statements, restatement of all subsidiary statements into the single “common denominator” of one currency facilitates management comparison. This chapter reviews the predominate methods used in translation today, and concludes with the Mini-Case, McDonald’s, Hoover Hedges, and Cross-Currency Swaps, illustrating how one major multinational manages its investment and translation risks.
EXHIBIT 11.1 Ganado’s Cross-Border Investments and Consolidation
Overview of Translation
There are two financial statements for each subsidiary that must be translated for consolidation: the income statement and the balance sheet. Statements of cash flow are not translated from the foreign subsidiaries. The consolidated statement of cash flow is constructed from the consolidated statement of income and consolidated balance sheet. Because the consolidated results for any multinational firm are constructed from all of its subsidiary operations, including foreign subsidiaries, the possibility of a change in consolidated net income or consolidated net worth from period to period, as a result of a change in exchange rates, is high.
For any individual financial statement, internally, if the same exchange rate were used to remeasure each and every line item on the individual statement—the income statement and balance sheet—there would b ...
ACC401012VA016-1194-001 - ADVANCED ACCOUNTING
Week 9 Assignment 2 - Submit Here
Rachel Bright on Sun, Jun 02 2019, 1:25 PM
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15. 15Another student's paper
16. 16http://www.informasitraining.com/foreign-exchange-risk-management
Running head: 1 FOREIGN CURRENCY RISK 1
2 FOREIGN CURRENCY RISK 5
Foreign Currency Risk
Rachel Y. Bright
Professor Repp
ACC 401
Due June 3rd, 2019
Exposure
Differentiation in the exchange rate in diverse currencies may affect the business situation. This is the situation that XYZ Inc, is likely to experience in three countries where is targeting to expand company sales through export. Once companies sell goods and services in the international market, they get paid in the local currency of the country in which they sell goods to and the amount which they are paid is likely to be lower than what they expected. The difference that comes about due to changes in the value of the company which is caused by the differences in the money market is referred to as the exposure. This is a risk and therefore, risks management is required by companies in order to develop strategies such as hedging transactions, translations and other operations that help the company to avoid diminishing in the market value and also profits.
3 The three types of risk that are identified are accounting exposure, transaction exposure, and operating exposure. 4 Accounting exposure is also referred to as translation risk. 5 This occurs when reporting and consolidating financial statements requires conversion from the foreign currency to local currency, translating foreign assets or liabilities into home currency (Francis, 1). Transaction exposure occurs from changes in the value of foreign currency contracts as a result of the exchange rate changes. Lastly, we have operating exposure also referred to as economic exposure. 5 It arises because exchange rate change may alter the value of future revenues and costs (Shapiro, 2). It is used to determine the difference in the current worth of the company consequential from the changes in the streams of the revenues and costs that are likely to be caused by the unforeseen changes in the exchange rate.
If XYZ Inc expands as proposed, accounting exposure will affect the balance sheet because liabilities incurred will be translated into foreign currency to home local currency and this will affects the balance sheet. Considering transaction exposure, the.
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Experience Mazda Zoom Zoom Lifestyle and Culture by Visiting and joining the Official Mazda Community at http://www.MazdaCommunity.org for additional insight into the Zoom Zoom Lifestyle and special offers for Mazda Community Members. If you live in Arizona, check out CardinaleWay Mazda's eCommerce website at http://www.Cardinale-Way-Mazda.com
Jimmy Gentry presents "Understanding Financial Statements," a Webinar hosted by the Donald W. Reynolds National Center for Business Journalism. For more information, visit http://businessjournalism.org.
FIN 534 Week 10 Multinational Financial ManagementSlide 1Intr.docxssuser454af01
FIN 534 Week 10: Multinational Financial Management
Slide 1
Introduction
Welcome to Financial Management. In this lesson we will discuss multinational financial management.
Next slide
Slide 2
Topics
The following topics will be covered in this lesson:
Multinational, or global, corporations;
Multinational versus domestic financial management;
Exchange rates;
Exchange rates and international trade;
The international monetary system and exchange rate policies;
Trading in foreign exchange;
Interest rate parity;
Purchasing power parity;
Inflation, interest rates, exchange rates;
International money and capital markets;
Multinational capital budgeting;
International capital structures; and
Multinational working capital management.
Next slide
Slide 3
Multinational, or Global, Corporations
When the firm operates in another country it faces issues that it doesn’t face in its domestic country. Any time we talk about the firm operating in a foreign country we refer to it as a multinational, transnational or global corporation and these terms are used interchangeably. Firms choose to locate in a foreign country for a variety of reasons.
First, the firm wants to broaden its markets. This usually happens when the domestic market becomes saturated.
Second the firm may want to ensure a source of raw materials.
Third the firm may need a new form of technology.
Fourth it may shift production to a lower – cost country.
Fifth, the firm may want to avoid political and regulatory issues in its home country.
And sixth, the firm may want to diversify so it can have a cushion against any adverse impact of changing economic conditions in any one country.
Next slide
Slide 4
Multinational versus Domestic Financial Management
The concepts and procedures we’ve studied up to this point apply to domestic as well as multinational operations. There are however, six major factors that distinguish financial management in a purely domestic firm from one that operates globally.
First the global firm is affected by exchange rates because cash flows are denominated in different currencies.
Second, since each country has its own economic and legal systems it can make it difficult for the firm to deploy resources and make it difficult for executives trained in one country to move to another.
Third, language differences make it difficult to communicate.
Fourth, different countries have different cultural differences that shape the values and influence the firm’s ability to conduct business.
Fifth, sometimes in foreign countries governments negotiate directly with the firm. In this way, the marketplace does not determine the terms of trade on which transactions are determined.
And sixth, a foreign country may place restrictions or expropriate assets within its boundaries. This is referred to as political risk and it varies from country to country. Terrorism is another form of political risk faced by the global firm.
Next slide
Slide 5
Exchan ...
Cost of investments in securities . Benefits of low brokerage . where to find lowest equity commodity brokerage in India .Advantages of low brokerage in trading profitability . WhatsAp 9 0 1 - 91 - 5 1 - 9 8 8
Jimmy Gentry presents "Unlocking Financial Statements - Day 4," a business journalism Webinar for the Donald W. Reynolds National Center for Business Journalism.
To learn more about free training for business journalists, please visit businessjournalism.org.
I need a 100 word reply to each of the following 8 forum post from.docxtroutmanboris
I need a 100 word reply to each of the following 8 forum post from a finance class. (800 words total):
Finance Forum Reply #1
By using ratios, financial analysts are able to “
predict financial variables and to evaluate relative performance” when looking at financial statements (Giacomino and Mielke, 1993).
This provides the advantages of being able to evaluate the strength and profitability of a company, as well as being helpful in identifying and predicting possible bankruptcy and financial distress (Giacomino and Mielke, 1993).
A disadvantage of using financial ratio analysis is that to be effective, a company has to have another company to compare to.
Without comparison, all of the financial data analyzed for a particular business could be useless.
This is especially the case with small, niche-type businesses (Accounting Explained, 2013).
Another disadvantage of using financial ratio analysis is that it is analyzing historical information, while the users of the data are more interested in “current and future information” (Accounting Explained, 2013).
References
:
Giacomino, D. E., & Mielke, D. E. (1993). Cash flows: Another approach to ratio
analysis.
Journal of Accountancy, 175
(3), 55.
Accounting Explained (2011-2013).
Advantages and Limitations of Ratio Analysis.
Finance Forum Reply #2
Making a choice of a ratio is determined on the present need and purpose of the individual. Liquidity, leverage and investment return are what can be used to study the usage of ratios. Strong liquidity, cash and capital help with the financing that a company has for any given project.
In the article by James Horrigan, it provides a short history of financial ratio analysis. It tells of the five financial ratios that are used for the studies. The financial ratios are: working capital-to-current liabilities ratio (WC/CL) for short term liquidity; cash flow-to-current liabilities ratio (CFCL) for cash position; net worth-to-total liabilities ratio (NW/TL) for long-term solvency; return on total assets (EBIT/TA) for profit-generating ability; and revenue-to-total (REV/TA) for managerial performance (Halim, Jaafar& Osmon). Ratios are formed to be simple and are an advantage with analysis.
In the article by Paul Barnes he gives two principals for using ratios, 1. To control for the effect of size on the financial variables being examined. The use of ratios was necessarily based on a hypothesis about the relationship between the numerator variable and the denominator size variable. 2. To control for industry-wide factors. Ratios aid comparisions between subject firm and its industry. As financial ratios are constructed from two accounting variables, the joint distribution will depend on the behavior of both the numerator and the denominator and on the relationship between these two coordinates.
1. Horrigan, J. O. (1968). A Short History of Financial Ratio Analysis. Accounting Review, 43(2), 284-294..
2. Barnes, P. (1987).
This presentation explores the possibility of Pringles establishing a factory in Israel. All Hypothetical of course. Before Procotor and Gamble dumped them.
This presentation explores the strategy of Hasbro putting its brands on the big screen. We will cover the company's history, past strategies, and the terms of the deal.
This presentation sums up a case study of sociological aspescts behind crime in Chicago. One case in particular where Afican-American Hernando Washington raped a caucasian woman.
2. Options for foreign currency transactions occurring Importing/exporting Loans payable and receivable to a foreign currency Contract that forward the purchase or sale of foreign currency Purchase and sale of foreign currency directly
3. FASB Statement 52Foreign Currency Translation December 1981 and replaces FASB 8 Adjustments that do not affect cash flows excluded Translation adjustments Adjustments that affect cash flow are included in net income Extension of parent’s operations Gains and losses are included
4. FASB Statement 52 continued Translation adjustments Although not included in net income, must be reported in the consolidated equity section Transaction Gains and Losses Example: U.S may borrow Mexican pesos or have receivable to Germany in Euros Included unless it is a hedge Intercompany investments do not give rise to gains and losses
5. FASB Statement 133Accounting for Derivative Instruments and Hedging Activities June 1998 & works in conjunction with FASB 52 “contracts, transactions, or balances that are, in fact, effective hedges of foreign exchange risk will be accounted for as hedges without regard to their form” 3 forms of hedges are listed but we will only focus on the third hedge for that one focuses on foreign currency
6. FASB Statement133 Continued Further subdivided Hedging foreign currency exposure for net investment Hedging foreign currency exposure of unrecognized firm’s commitment Hedging foreign currency exposure of an available-for-sale security Hedging foreign currency exposure of foreign-currency-denominated forecasted transaction
7. Functional Currency Functional Currency is the primary currency where most of the economic activities. U.S. dollar for U.S. Co. operating in U.S. This is also the reporting currency on financial statements If self contained and integrated, functional currency is the currency of that country If dependent on parent and affect cash flows, then parent’s currency is functional currency
8. Spot Rate, Current Rate, and Valueing Spot rate is the rate at which transactions occurred Current Rate is the one found on balance sheet Direct Exchange Rate DER=(U.S. dollar-equivalent value)/ 1 FCU Indirect Exchange Rate IER=1 FCU/ (U.S. dollar-equivalent value)
9. Tables & Computing Gains and Loss http://www.exchange-rates.org/ Functional= foreign currency units * DER At time of transaction Then do it again when you prepare financial reports If there is a difference record the gain or loss
10. Jerry Brown’s Crusade Don’t make this mistake California Attorney General Jerry Brown is suing the State Street Bank & Trust for overcharging the state’s two biggest pension funds Highest rate of the day instead of the rate the transactions took place. Believed to been done for 8 years with $56 million in overcharges Suit asks for three times as much
11. Transactions for Receivables and Payables The two transaction approach 1. The Transaction date- record the purchase or sale at functional currency 2. The Balance Sheet date-adjust the payable of receivable to Balance Sheet date and record any gains or losses 3. Settlement Date-First adjust the currency payable or receivable for any change in ER. Record gain or loss acquired and record the settlement
12. Works cited Baker, Richard E., Valdean C. Lembke, Thomas E. King, and Cynthia G. Jeffrey. Advanced Financial Accounting. 8th ed. New York: McGraw-Hill/Irwin, 2009. Print. FASB: Financial Accounting Standards Board. Web. 31 Mar. 2010. <http://www.fasb.org/home>. Maurer, Harry, and Cristina Linblaid, eds. "Jerry Brown's Crusade." BusinessWeek 2 Nov. 2009: 10. LexisNexis. Web. 20 Feb. 2010. Opdyke, Jeff D. "Weekend Investor--- The New Basics---Running with Scissors: The Carry Trade Can be Unforgiving." The Wall Street Journal [New York] 20 Feb. 2010: 9. ProQuest. Web. 20 Feb. 2010.