Define “foreign currency risk exposure.” Define “asset exposure.” State how derivatives and changes in their values...

Define “foreign currency risk exposure.”
Define “asset exposure.”
State how derivatives and changes in their values are reported under US GAAP and IFRS.
What is a forward contract, and how discounts and premiums on it are treated under US GAAP and IFRS?

Expert Solution

1. Foreign currency risk exposure- Foreign currency risk exposure is a risk that could occur in a loss due to change in the currency or currency fluctuations. It is also known as the exchange rate risk, it is the possibility that the value of the invested currency may decrease due to changes in the related currencies or the foreign currency.

2. Asset Exposure- Asset Exposure is the amount/money that a person has invested in a particular asset. It is the investor portfolio that is made up of different type of asset class for example : commodity, shares etc. It shows to the investor the money invested by him/her that may be result in a loss to them.

3. Undder US GAAP the derivatives and changes in their values are shown as part of Accumulated Other Comprehensive Income on the Balance Sheet and in IFRS the derivatives and changes in their values are shown on the balance sheet at the fair value which means that their recognition is mandatory.

ekkarill92 answered 2 years ago

Define and explain the terms "foreign exchange exposure risk" and "functional currency."

Define and explain the terms "foreign exchange exposure risk" and "functional currency." Explain the purpose of using a functional currency in the translation of financial statements.

State how derivatives and changes in their values are reported under US GAAP and IFRS.

(14) Exchange rate risk of a foreign currency payable is an example of a. transaction exposure....

(14) Exchange rate risk of a foreign currency payable is an example of a. transaction exposure. b. translation exposure. c. operating exposure. d. None of the above (15) A depreciating currency makes: a. Import-competing goods less competitive b. Export-competing goods more competitive c. Export and import-competing goods more competitive d. Export and export-competing goods more competitive (16) The price elasticity of demand for commodity products tends to be a. highly elastic. b. highly inelastic. c. ...

What is operating exposure to currency risk and why is it important?

a. Transaction exposure is defined as A. the sensitivity of realized domestic currency values of the...

a. Transaction exposure is defined as A. the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to unexpected exchange rate changes. B. the extent to which the value of the firm would be affected by unanticipated changes in exchange rate. C. the potential that the firm's consolidated financial statement can be affected by changes in exchange rates. D. ex post and ex ante currency exposures. b. An exporter faced with exposure to...

19. Foreign exchange rate risk: How is transaction exposure different from operating exposure? 20. International debt:...

19. Foreign exchange rate risk: How is transaction exposure different from operating exposure? 20. International debt: What are Yankee bonds?

As a part of your analysis of your foreign currency exposure, each group of students is...

As a part of your analysis of your foreign currency exposure, each group of students is asked to: 1. Determine and provide details of the forward rate of the currency that you are trading in. With reference to the current interest rates, determine if interest rate parity exists between your home territory and your country of trade. 2. Based your assumptions indicate the expected future trend of the exchange rate between your home territory and your country of trade.

For the following transactions, indicate the amount of foreign currency exposure created by the transaction, whether...

For the following transactions, indicate the amount of foreign currency exposure created by the transaction, whether the exposure is long or short the time period of the exposure, and the impact of an increase and a decrease in the value of the foreign currency on the US company’s profit in the transaction: a. Sale of products to a Japanese customer at a price of 1 billion yen, with payment due one year from today. b. Purchase from a French supplier...

A, What factors create a balance sheet (or translation) exposure to foreign exchange risk? How does...

A, What factors create a balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? (150 words) B,What is hedge accounting? (150 words)

What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to...

What are derivatives? How can derivatives be used to reduce risk? Can derivatives be used to increase risk? Explain

Question