chapter 6–foreign currency translation …（章6-foreign货币翻译u2026）.pdfVIP

Chapter 6–Foreign Currency Translation Introduction and Background Foreign Exchange Concepts and Definitions The objective of a currency is to provide a standard of value, a medium of exchange, and a unit of measure. Currencies of different nations perform the first two functions with varying degrees of efficiency but essentially all currencies provide a unit of measure. To measure a transaction in their own currencies, businesses around the globe rely on exchange rates negotiated on a continuous basis in foreign currency markets. An exchange rate is the ratio between a unit of one currency and the amount of another currency for which that unit can be exchanged at a particular time. The exchange rate can be compared directly or indirectly. Assume that $1.60 can be exchanged for one British pound: direct quotation (US dollar equivalent): $1.60 1 = $1.60 indirect quotation (foreign currency per U.S. dollar): 1 $1.60 = £.625 The exchange rates that are used in accounting for foreign operations and transactions (other than forward contracts) are spot rates, current exchange rates, historical exchange rates, and average rates. They are defined as follows: 1 spot rate–the exchange rate for immediate delivery of currencies exchanged current rate–the rate at which one unit of currency can be exchanged for another currency at the balance sheet date or the transaction date historical rate–the rate in effect at the date a specific transaction or event occurred average rate–a simple or weighted average of either current or historical exchange rates Use of historical exchange rates shields financial statements from foreign currency translation gains or losses. The use of current rates causes translation gains or losses. We need to dis