Review the text, Kentouris (2008), other suggested readings, and FASB and IFRS publications to find a foreign currency-related issue that required harmonization. You are to: Summarize the issue or...

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Introduction
Due to too much fluctuation in the exchange rate there is regular movement in the
international operations of the cu
ency markets which increases the risk of translating the
foreign cu
encies in various denominations. It implies that the exchange rates movements
increase the risk of managing cu
ency value in these foreign transactions. The amount of risk
attached with the movement in exchange rates is dependent on the volume and value of
exchange of cu
ency involved. Most of the sufferers of the exchange rate risk are the
multinational firms which work in international domain and several heavy transactions of
goods and services take place (Hakala and Wystup, 2002). In the market of cu
ency, the
supply and demand forces will finally lead to finding out the value of the cu
ency in case of
flexible exchange rate system. On the other hand, fixed or pegged exchange rate system, the
cu
ency value determines the central bank resulting into fixation of the exchange rate so that
all the transactions will be dependent on the exchange rate in the country. Now a days, rarely
any country follow the cu
ent fixed exchange rate policy as it is highly influential system.
There are various types of exchange rate risk involved –
a. Translation risk in which there is directly related to the movements in the exchange rate
esulting into changes in the valuation of the subsidiary of a foreign firm. Also, it involves the
isk of consolidation of the balance sheet of the parent company with that of the given foreign
subsidiary firm. Due to the exposing of the company’s net assets to that of the movements in
the potential exchange rates, difficulties are being faced by the firms at the time of end of
period when there is translation of the subsidiary company. This is because it takes into
account the average exchange rate at which income statements are being converted into the
final income statement of the whole company (Shapiro, 1996; Madura, 1989).
Another type of risk involved in exchange rate movements include the transaction risk in
which there is dealing with the exposure of the account receivables and account payables
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which are shown in the transactional account. Therefore, it is also called as the cash flow risk
which also makes changes in the repatriation of dividends in a multinational company.
An exchange rate change will have direct impact over the denomination changes of the
cu
ency like that in the contractual value of the organizations.
Economic risk includes the reflection of the present value of the firm which are happens as a
esult of the movements in the valuation of the cu
encies in operating future cash flows of
the firms. Therefore it indirectly affects the operating expenses of the firm along with its
evenue. Revenues of the firm...