Forop Ltd. is a foreign subsidiary of Domop Inc. Domop’s accounting exposure to exchange rate changes when translating the accounts of Forop is a substantial net liability exposure. Domop’s management expects the foreign currency in which Forop operates to increase in value relative to the Canadian dollar; such an increase will result in a large translation loss. The management of Domop proposes to enter into a forward contract to receive an equivalent amount of foreign currency to hedge against the potential translation loss. Would you recommend that Domop’s management follow their proposed course of action? Explain.
Answer to relevant QuestionsWhat translation method is recommended for foreign operations with the same functional currency as the parent? Why is this method recommended?Distinguish between foreign-currency transactions and foreign-currency operations.How does the translation of depreciation and amortization differ under the current-rate method as opposed to the temporal method?The SCI for 20X3 for Hilary Co., expressed in Coker francs (CF), is as follows:Sales revenue.................................. CF 3,000,000Cost of goods sold:Beginning inventory....................... 200,000 ...On January 1, 20X6, Woods Ltd. formed a foreign subsidiary that issued all of its currently outstanding common shares on that date. Selected captions from the SFPs, all of which are shown in local currency units (LCU), are ...
Post your question