Which one of the following statements is correct?

Question

Quizplus · Accepted Answer

Accounting translation gains and losses, which arise from the conversion of financial statements denominated in foreign currencies into the reporting currency, are recorded in the equity section of the balance sheet. This is because these gains and losses are not realized until the foreign operations are sold, liquidated, or dissolved. The other statements are incorrect:

A) The use of forward rates reduces short-run exposure to exchange rate risk by allowing firms to lock in a known exchange rate for future transactions.
C) There are various methods of reducing long-run exposure to exchange rate risk, such as diversification, hedging, and invoicing in the domestic currency.
D) A firm cannot record a profit on its income statement from a foreign subsidiary if that subsidiary has no profit, regardless of the impact of exchange rate risk.
E) Unexpected changes in economic conditions are classified as economic exposure, not short-run exposure to exchange rate risk.

Which One of the Following Statements Is Correct