Currency translations

So far, we have been dealing with foreign currency conversions. Interesting problems arise with foreign currency translations, where no money changes hands but bookkeeping entries and financial statements are restated in a different currency. We touched on this in Chapter 18 (see Comparing competitors). Let me give another example which shows how unavoidable errors and discrepancies can arise.

Sleight of hand

A subsidiary records payments due to its parent company (but does not necessarily make the payments) in March and August. At the rate applicable on the dates of the entries, a total of $100 million was owed to the parent company. See following table.

However, the transactions are probably not booked at the spot exchange ...

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