Gains and losses directly affect cash flows in the case of translation exposure, but cash flows can be significantly affected by transaction exposure.

Question

Quizplus · Accepted Answer

Translation exposure affects the accounting value of assets, liabilities, and equity when consolidating financial statements in a parent company's currency, but it does not directly impact cash flows. Transaction exposure, on the other hand, affects cash flows directly because it involves actual cash transactions in foreign currencies, which can lead to gains or losses due to exchange rate movements.

Gains and Losses Directly Affect Cash Flows in the Case