RSM321H1 Chapter Notes - Chapter 10: Hedge Accounting, Ias 39, Historical Cost
Document Summary
Foreign currency-denominated transactions: transactions that occur in foreign currencies (i. e. purchases/sales in foreign currency): presents foreign currency risk since the amounts will have to be converted into canadian currency (exchange rate fluctuates). Exchange rate: the price to change one currency into another currency: they are determined by market forces, governments intervene to lessen the swings in the value of their currencies. If the currency is devaluing, a massive repurchase of the currency by its native country could offset the devaluation. Reasons why currency rates fluctuate: inflation rates. In a period of inflation, the purchasing power of a country"s currency declines. If the currency will not buy as much in goods as it did before, then neither will it buy as much currency of another country as it did before: interest rates. Higher interest rates attract foreign investment and in so doing drive up the price of the currency of the country with the higher interest rates: trade surpluses and deficits.
