Managing FX risk: How useful is accounting information?

✍ Scribed by Stephen Makar; Li Wang; Pervaiz Alam

• Publisher: John Wiley and Sons
• Year: 2011
• Tongue: English
• Weight: 207 KB
• Volume: 23
• Category: Article
• ISSN: 1044-8136
• DOI: 10.1002/jcaf.21722

✦ Synopsis

Abstract

Multinational companies manage their exposure to changes in foreign exchange (FX) rates, in part, by using FX derivatives (FXD). And recent volatility in FX rates has increased the importance of evaluating this strategic choice. However, current accounting practices do not provide timely and sufficient information to accurately predict future cash flows for FXD hedge percentages less than 100 percent.

This article will help CFOs and treasurers with their FX risk and cash management strategies—by describing the limits of existing accounting information on derivatives use and the Financial Accounting Standards Board's efforts to address such limits. Since CFOs are required to sign off on the veracity and accuracy of financial statements under the Sarbanes‐Oxley Act, they should understand the limits of FXD hedge accounting information. © 2011 Wiley Periodicals, Inc.