1. Select an area of the world upon which to focus your attention. For each major country of your selected area (like Canada, Mexico, Brazil, Argentina, Japan, China, India, Australia, Singapore, Hong Kong, South Korea, Russia, Germany, France, Italy, United Kingdom, Ireland, Spain, France, Switzerland, Sweden, Denmark, Finland, Saudi Arabia, Israel—I know I missed some), identify the currency in use in the country, show what the foreign currency is now selling for versus the U.S. dollar, and explain whether it has weakened or strengthened against the U.S. dollar for the current period and from 5 years ago. Finally, discuss why the currency has strengthened or weakened versus the U.S. dollar during these time periods.
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2. Class, what are some of the complexities involved when accounting for different currencies?
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#3 Just elaborate on this student post below with APA source Ref when you finish your point.
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The hedge fund I used to work for specialized in emerging markets which means we invested in third world countries most of the time. Due to this, different currencies came into play in many areas from accounts payable, accounts receivable, cash balances, FX hedging and trading among others.
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One complexity is lets say you receive an invoice in Russian Ruble, what would be the proper way to book that liability and also pay that liability in the US? You would first have to convert the liability to USD to book but when you go to pay the invoice lets say a month later the FX rate would have changed so to relieve that liability you may actually realize a gain or loss on the transaction. Sometimes it can be material.
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Another scenario is you could have bought Ruble and now carry that currency on your balance sheet and at your bank. You will most likely need to make sure there is excess to account for any swings in FX otherwise you may not have the balance to cover the invoiced amount. After the invoice is paid you may be left with excess Ruble and need to convert that back into USD realizing a gain or loss again on the FX conversion.
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Otherwise you can execute a payment through your bank at the standard spot rate which is usually unfavorable and the bank could be taking a material spread on he transaction.
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