Chapter 20 – Business Across Borders
‘Money speaks sense in a language all nations understand.’ Aphra Behn
Overview
This chapter looks at how you manage the numbers of international business. The following
few pages review the arithmetic and jargon of foreign exchange, the risks of doing
business overseas and how you can minimize them, the finance of foreign trade, and the
problems of dealing with financial transactions and accounts in foreign currencies.
Mastering international business
After reading this chapter, you should be able to answer the following questions:
- Would it be good or bad if you were doing business across borders and your currency
appreciated against the foreign currency? What would happen to the foreign currency
price of your products? Would your purchases in foreign markets appear cheaper or
more expensive?
- How could you use a trade-weighted exchange rate in your daily work?
- Can you name four ways of dealing with the risks of exchange-rate movements?
- Can you name four currency market derivatives which help minimize exchange-rate
risks?
- How does trade credit lower risks? What is an export letter of credit? An import letter
of credit? A standby LC?
- What bookkeeping entries would you pass at year-end if you had uncovered receivables
in a foreign currency, and the exchange rate had moved against you?
- What is the difference between currency conversions and currency translations?
- What freedom do managers and beanies have when selecting exchange rates? How
can this affect bookkeeping entries?
- Why do you need to include an exchange-rate gain or loss when translating financial
statements from one currency to another?
- How would you decide whether foreign operations were integral to your business?
- How would this affect translation of the financial accounts?
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