国际会计学第六版chapter_6 Foreign Currency Translation

Direct quote: the exchange rate specifies the number of domestic currency units needed to acquire a unit of foreign currency.
Indirect quote: the exchange rate specifies
Facilitates reporting domestic accounts to foreign audiences-of-interest.
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Types of Transaction Rates
Spot transactions: the physical exchange of one currency for another in which delivery takes place immediately.
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How does a translation gain or loss differ from a transactions gain or loss?
Is there more than one way of translating financial statements from one currency to another? If so, what are they?
At the transaction date, each asset, liability, revenue, and expense denominated in a foreign currency is measured and recorded in the functional currency of the reporting entity at the spot exchange rate in effect on that date.
How does the temporal method of currency translation differ from the current rate method?
What is the relationship between currency translation and inflation?
Swap transaction: involves the simultaneous spot purchase and forward sale, or spot sale and forward purchase of a currency.
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Accounting for Spot Transactions
What is the difference between a spot, forward, and swap transaction?
What exchange rates are used in the currency translation process and what are their financial statement effects?
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Why do Firms Translate?
Facilitates the preparation of consolidated financial statements that allow readers to see the performance of a multinational company’s total operations both domestic and foreign.
the price of a unit of the domestic currency in
terms of the foreign currency.
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Forward transaction: agreements to exchange a specified amount of one currency for another at a future date.
International Accounting, 6/e Frederick D.S. Choi Gary K. Meek
Chapter 6:
Foreign Currency Translation
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Learning Objectives
Why do firms translate from one currency to another?
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Functional currency is the primary currency in which the reporting entity transacts business and generates and spends cash; e.g., dollars in the case of a U.S. reporting entity.
Spot transaction: occurs when an enterprise purchases or sells goods for which payment is made in a foreign currency, or when it borrows or lends foreign currency.
Facilitates the measurement of a firm’s exposure to foreign exchange risk.
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Facilitates the recording of f来自百度文库reign currency transactions; i.e., foreign currency sales, purchases, borrowing or lending in the consolidated entity’s reporting currency.