Multinational Financial Management, 10th solution manual ch_10

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1、5CHAPTER10:MEASURINGANDMANAGINGTRANSLATIONANDTRANSACTIONEXPOSURECHAPTER10MEASURINGANDMANAGINGTRANSLATIONANDTRANSACTIONEXPOSUREThischapterintroducestheconceptofaccountingexposureanddescribesthevariousalternativesavailabletomeasureaccountingexposureandtomanageit.Akeypointi

2、sthewidedisparityinresultspossibleforsimilarlysituatedfirmswhenusingdifferentmeasuresoftranslationexposure.Althoughthematerialisfairlymechanical,financialofficersofMNCsshouldunderstandhowcompaniesmeasureexposure,atleastforreportingpurposes.Whenitcomestomanagingaccounting

3、exposure,companieshaveanumberofdifferentalternatives.Beforedecidingonwhichhedgingalternativestouse,however,companiesmustfirstdecidewhattheyaretryingtoaccomplishthroughtheirhedgingprogram.KeyPointsonMeasuringAccountingExposure1.Accountantsareconcernedwiththeappropriateway

4、totranslateforeigncurrencydenominateditemsonfinancialstatementstotheirhomecurrencyvalues.Ifcurrencyvalueschange,translationgainsorlossesmayresult.2.Therearefourprincipaltranslationmethodsavailable:thecurrent/noncurrentmethod,themonetary/nonmonetarymethod,thetemporalmeth

5、od,andthecurrentratemethod.3.ThepastandpresentmandatedtranslationmethodsareFASB8andFASB52,respectively.4.Regardlessofthetranslationmethodselected,measuringaccountingexposureisconceptuallythesame.Itinvolvesdeterminingwhichforeigncurrencydenominatedassetsandliabilities

6、willbetranslatedatthecurrent(postchange)exchangerateandwhichwillbetranslatedatthehistorical(prechange)exchangerate.Theformeritemsareconsideredtobeexposed,whilethelatteritemsareregardedasnotexposed.Translationexposureisjustthedifferencebetweenexposedassetsandexposedliabil

7、ities.5.Byfarthemostimportantfeatureoftheaccountingdefinitionofexposureistheexclusivefocusonthebalancesheeteffectsofcurrencychanges.Thisfocusismisplacedsinceithasledfirmstoignorethemoreimportanteffectthatthesechangesmayhaveonfuturecashflows.KeyPointsonManagingAccountingE

8、xposure1.Hedgingcannotprovideprotectionagainstexpectedexchangeratechanges.Firmsordinarilycopewithantici