Which of the following statements are correct?
I.The usage of forward rates increases the short-run exposure to exchange rate risk.
II.Accounting translation gains and losses are recorded in the equity section of the balance sheet.
III.The long-run exchange rate risk faced by an international firm can be reduced if a firm borrows money in the foreign country where the firm has operations.
IV.Unexpected changes in economic conditions are classified as short-run exposure to exchange rate risk.

Question

Quizplus · Accepted Answer

II.Accounting translation gains and losses are indeed recorded in the equity section of the balance sheet, typically within the accumulated other comprehensive income (AOCI) section. This reflects the adjustments made for currency translation differences arising from converting foreign operations into the reporting currency.III.The long-run exchange rate risk, also known as economic exposure, can indeed be reduced if a firm borrows money in the foreign country where it has operations. This strategy aligns the firm's currency of debt with its revenues, thereby naturally hedging against currency fluctuations.

Which of the Following Statements Are Correct