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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Match each term in Column A with its related definition in Column B.

Column A

  1. 1. ____________ Spot rate
  2. 2. ____________ Currency appreciation
  3. 3. ____________ Translation risk
  4. 4. ____________ Transaction risk
  5. 5. ____________ Exchange rate

Column B

  1. a. The rate at which one currency can be traded for another currency.
  2. b. The possibility that future cash transactions will be affected by changing exchange rates.
  3. c. A month ago, $1 U.S. was worth 8.5 Mexican pesos. Today, $1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what?
  4. d. The degree to which a firm’s financial statements are exposed to exchange rate fluctuation.
  5. e. The exchange rate of one currency for another for immediate delivery (today).

To determine

Identify correct description of the exchange relating keywords.

Explanation

Exchange Rate:

Exchange rate is a rate at which currencies of two countries can be traded. Exchange rates can be quoted directly or indirectly.

Correct description of the exchange relating keywords are shown as follows:

Exchange related keywordsDescription
Spot rateThe exchange rate of one currency for another for immediate delivery.Spot rates are used to convert currency in current period; whereas, forward rates are used to convert currency at a predetermined future date.
Currency appreciationOne month back exchange rate was $1 for 8.5 MP, now it is $1 for 9MP.Since, more MP can be obtained in exchange of 1$; therefore, dollars have been appreciated against MP.
Translation riskThe degree to which a firm’s financial statements are exposed to exchange rate fluctuation...

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