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International Financial Management: Example Problem

Compare and contrast the four currency translation methods. Which two methods are used by FASB 52? Be sure to discuss the two step method used in FASB 52 and how highly inflationary economies (around 100% inflation in a three year period) are handled. Discuss how Japan and Germany approach the translation of currency.

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Currency Translation Methods

As a result of the volatility and fluctuations of exchange rates, companies with foreign operations are faced with accounting issues on how to translates their foreign operations and integrate them in to the consolidate financial statements and related reports (White, Sondhi & Fried, 2008, p. 162). The Statement of Financial Accounting Standards No. 52, which is issued by the Financial Accounting Standards Board or FASB, Foreign Currency Translation, prescribes reporting requirements for the translation of the financial statements of these foreign operations.

There are four methods of alternative currency translation methods as discussed by Shapiro (2005) and these are:
1. Current/non current method. This method uses the current exchange rate in converting the foreign operations' accounts, however income statement accounts ...

Solution Summary

This solution compares and contrasts the four currency translation methods.