Question: a) Explain 'hedging'. b) Explain the financial reporting issue that arises when a company enters into foreign currency transactions. Provide examples of various foreign currency

a) Explain 'hedging'.

b) Explain the financial reporting issue that arises when a company enters into foreign currency transactions. Provide examples of various foreign currency transactions and indicate whether each transaction involves the initial recognition of a monetary item or non-monetary item or both.

c) Describe the indicators used in determining the functional currency of an entity.

d) Explain what is meant by a spot exchange rate, closing exchange rate, and forward exchange rate.

e) What is meant by foreign exchange risk? How can forward exchange contracts be used to manage foreign exchange risk?

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