describe foreign currency transaction exposure, including accounting for and disclosures
about foreign currency transaction gains and losses
International trade is the mechanism through which the goods and services of one country are bought and sold in another country and in the international markets. Under the international trade mechanism, countries resort to selling and purchasing goods and services across the international borders. The international trade of goods and services is done by the import and export of goods and services and at the prices determined by the exchange rates prevailing between these countries.
The exchange rates are the rates that are used to exchange the currency of one country with the currency of another country. These rates are not always fixed and can fluctuate due to various changes in the economic and political environment of the countries.
Foreign transaction exposure -
Foreign transaction exposure is the uncertainty about the risk of loss related to businesses that are involved in the international trade of goods and services. It is basically a risk of fluctuation of the exchange rates after a firm engaged in the international trade has taken a financial obligation and the fluctuation poses negative outcomes for the firm. This risk or uncertainty arises because of the trade-in of different currencies and changes in the exchange rates.
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