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Summary of Currency Translation and the Behavior of Exchange Rate

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SUMMARY OF CURRENCY TRANSLATION AND THE BEHAVIOR OF EXCHANGE RATE Journal written by Robert G.Rulland from Northeastern University and Timothy S.Dauprik from Univesity of South Carolina discussed about the foreign currency translation and behaviour of exchange rate. Consequently, the first controversy is which translation method provides the most meaningful translation gains and losses, for example which method provides the most reasonable measure of the foreign entity's exposure to movements in exchange rates. The second controversy is whether translation gains and losses should be reported in the income statement or whether they should be deferred and shown in the stockholders' equity section of the balance sheet. Two major controversies exist in the translation of foreign currency financial statements is first which translation method should be used, and the second is how should the resulting translation gains and losses be reported. When items translated at current exchange rates, translation gains and losses result. Translation methods vary as, to which balance sheet items translated at current and which at historical exchange rates. This paper proposes two criteria for settling these questions which are based upon the actual pattern of exchange rates existing between the U.S. dollar and other currencies .It is argued that application of these criteria would result in a more objective and economically meaningful translation process than exists under current rules.

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