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International Transactions effect on the Domestic Economy

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Unemployment has become quite a significant statistic in the United States. It is not the only challenge, but results from and influences the economy in the United States. Do international transactions have the potential to help the economy in the United States? Or will it cause the economy to suffer further? What are your thoughts?

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International transactions definitely have the ability to help the economy, on both a domestic and a global basis. To consider the impact of this issue, let's imagine that the opposite took place. Let's imagine that 90% of all international transactions stopped. If this happens, the international market declines. We have to consider in what countries those international transactions are taking ...

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This solution discusses international transactions and the potential to help the domestic economy.

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International Finance Questions- direct and indirect exchange rates, foreign transaction, foreign currency transaction, factors affecting currency exchange rates, measurement of assets and liabilities denominated in a foreign currency, recognition of foreign currency transaction gains or losses, management of the risk of changes in the exchange rates for foreign currencies, difference between an exposed net asset position and an exposed net liability position.

Q11-1 Explain the difference between indirect and direct exchange rates.

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Q11-3 The U.S. dollar strengthened against the European euro. Will imports from Europe into the United States be more expensive or less expensive in U.S. dollars? Explain.

Q11-4 Differentiate between a foreign transaction and a foreign currency transaction. Give an example of each.

Q11-5 What types of economic factors affect currency exchange rates? Give an example of a change in an economic factor that results in a weakening of the local currency unit versus a foreign currency unit.

Q11-6 How are assets and liabilities denominated in a foreign currency measured on the transaction date? On the balance sheet date?

Q11-7 When are foreign currency transaction gains or losses recognized in the financial statements? Where are these gains or losses reported in the financial statements?

Q11-8 Sun Company, a U.S. corporation, has an account payable of $200,000 denominated in Canadian dollars. If the direct exchange rate increases, will Sun experience a foreign currency transaction gain or
loss on this payable?

Q11-9 What are some ways a U.S. company can manage the risk of changes in the exchange rates for foreign currencies?

Q11-10 Distinguish between an exposed net asset position and an exposed net liability position.

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