Chapter 20 – Business Across Borders

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?