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A Survey of Multinational Company Accounting Foreign Exchange Exposure

Author

Listed:
  • Augustine C. Arize
  • John Malindretos
  • Ikechukwu Ndu
  • Demetri Tsanacas
  • Neirouz Watad

Abstract

Purpose: One main type of foreign exchange exposure is translation exposure. Translation exposure measures potential accounting changes in a firm’s consolidated financial statements that result from a change in foreign exchange rates. The scope of this paper is to address translation risk by examining the preferences of the managerial team for specific financial instruments and strategies. Design/Methodology/Approach: The first part of this paper will illustrate some background information on the translation form of foreign exchange exposure. The second part of the paper addresses the methodology and includes a survey sent to over two hundred multinational companies who were listed in the Forbes 500 top multinational companies and presents the results. The last part of the paper presents the conclusions that are drawn from the responses. Findings: Foreign exchange exposure connects to a firm's profitability and net cash flow. Market value changes as a result of a change in exchange rates. An important duty of the financial manager is to measure the effect of foreign exchange exposure and manage it in such a way as to maximize the profitability, net cash flow and market value of the firm. When foreign exchange rates change, the effects on a firm can be measured in several ways. Practical implications: Appropriateness and Techniques of Hedging Accounting Currency Risk. Originality/Value: Translation Foreign Exchange Exposure Should Infrequently be Hedged Since it does not nduce a Cash Flow issue.

Suggested Citation

  • Augustine C. Arize & John Malindretos & Ikechukwu Ndu & Demetri Tsanacas & Neirouz Watad, 2022. "A Survey of Multinational Company Accounting Foreign Exchange Exposure," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 12(2), pages 128-135.
    • Handle: RePEc:ers:ijfirm:v:12:y:2022:i:2:p:128-135
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    References listed on IDEAS

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    More about this item

    Keywords

    Accounting; Current Rte Method; Exchange Rtes; Foreign Exchange Exposure; Hedging; Temporal Method; Translation of Financial Statements.;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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