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Floating Rates
Relationship between major currencies is determined by supply
and demand factors.
FASB No. 52
• Requires a two-transaction perspective.
(1)Account for sale
(2)Account for gains/losses from exchange rate
fluctuations
Foreign Currency Transactions
.
Importing and Exporting Transactions
Inventory delivered
12/10/2009
U.S. firm
Columbia firm
(Teletex)
8,541,000 pesos
received on 1/10/2010
LO 3 Common transactions.
LO 4 Three stages of concern.
Importing and Exporting Transactions
Inventory received
12/12/2009
U.S. firm
Taiwan firm
(Teletex)
500,000 Taiwan dollars
paid on 1/10/2010
Importing and Exporting Transactions
Purchases 19,550
Accounts payable 19,550
2. Speculation
Forward contracts used to speculate changes in foreign currency.