CHAPTER 4

FX Translation Exposure

This chapter looks at FX translation exposure, which is the accounting impact of FX rate changes on the reported financial results, particularly the equity book value, of a firm that owns a foreign business operation. The accounting rules for FX translation often do not reflect a company’s real FX business exposure. Therefore, managers are often faced with the choice of focusing on real FX business exposure or FX accounting exposure.

Accounting for FX Translation

Accounting rules for the preparation of consolidated financial statements require a multinational parent to make a one-time choice of the functional currency for each overseas affiliate (branch, subsidiary, division, and so forth). The functional currency ...

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