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Accounting-7795281 - for extending the credit in the...

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Question: 1. what concept underlies the two-transaction perspective in accounting for foreign currency transactions? 4. how does the term hedging mean? why do companies elect to follow this strategy? 200 Words Answer: Two transaction perspectives, the accrual approach has used in the accounting for foreign currency transactions. Payables as well as receivables have been denominated in the foreign currency created exposure to the foreign exchanges risks; this is a risk which changes in exchange rates over the time can result in foreign exchange’s losses. Under two-transaction perspectives, export sale or import purchase & subsequent collection or payment of the cash has been treated as the two separate transactions for being accounted separately. Idea is that the management has been made 2 decisions like (1) for making export sale or import purchase & (2)
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Unformatted text preview: for extending the credit in the foreign currency to foreign consumer who obtains credit from foreign supplier. Income effect from every of such decisions must be reported for separately. The hedging is a process for eliminating the exposure to the foreign exchange risks so as for avoiding the potential loss from fluctuation in the exchange rate. Additionally for avoiding the possible loss, companies hedging foreign currency transaction & commitment for introducing elements of the certainty in to future cash flow resulting from the foreign currency activity. The hedging includes establishing price today at that the foreign currency may be purchased or sold at future date....
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