MA5 - MA5-43 Since financial statements prepared by GAAP...

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MA5-43 Since financial statements prepared by GAAP standards must be reported in US dollars, companies are faced with having to translate the currency on financial statements of international subsidiaries before consolidation with the US parent company (Easton, Halsey, McAnally,Hartgraves & Morse, 2010). This process affects both the balance sheet and income statement as depending on currency fluctuations the result in US dollars could end up reporting a loss even if unit volumes for example remain without change (Easton et al.,) We can identify two possible solutions to reduce the volatility effect of foreign exchange fluctuation: According to Easton et al., a forward contract is a way to lock the current value of the currency in order to eliminate uncertainty about future changes. In case of a US dollar weakening the amount of money received should have represent a gain. However having locked the value via forward contract the company reports a loss since it will receive less than the current value. I
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This note was uploaded on 04/06/2012 for the course FINANCE 410 taught by Professor N/a during the Spring '09 term at AIU Online.

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MA5 - MA5-43 Since financial statements prepared by GAAP...

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