TRANSACTION: Company Sells or Buys 100-currency-units worth of stuff, denominated in a foreign currency, on January 1, with 90-day terms. $Functional Foreign Record SALES / EXPORTS Currency Currency What $ Does: What we get: Foreign Exch. Because: Date of sale - January 1 1.00 1.00 We recorded $100 A/R in our functional currency, but Date of payment - April 1 1.00 0.90 than expected Foreign Currency pays us 100-Fo which is now worth $ Date of sale - January 1 1 Date of payment - April 1 1.00 1.00 1.00 1.10 We recorded $100 A/R in our functional currency, but Foreign Currency pays us 100-Fo which is now worth $ than expected What we pay: PURCHASES / IMPORTS Date of sale - January 1 Date of payment - April 1 1.00 1.00 1.00 0.90 We recorded $100 A/P in our functional currency, but we will have to pay $ $ ____ to make our vendor whole. than expected Date of sale - January 1 Date of payment - April 1 1.00 1.00 1.00 1.10 We recorded $100 A/P in our functional currency, but we will have to pay $ to make our vendor whole. than expected Note that the gain or loss that we get is a 'foreign exchange gain/loss', and it is part of income from continuing operations ("above the line") TRANSACTION: Company loans 100-currency-units to its subsidiary, denominated in their local currency (LCU=Local Currency Unit) $Functional Foreign INTERCOMPANY LOAN Currency Currency What $ Does: Lender's Books: The lender will record, when the books are closed quarterly: Loan - January 1 1.00 0.90 March 31 1.00 0.85 a gain; sub repays 100-LCU's; we get more of our Functional Currency June 30 1.00 0.95 a loss; sub repays 100-LCU's; we get less of our Functional Currency September 30 1.00 1.05 a loss; sub repays 100-LCU's; we get less of our Functional Currency. December 31 1.00 1.02 a gain; sub repays 100 LCU's; we get more of our Functional Currency. Repayment - January 1 1.00 1.02 Note that the borrower records 100 LCU's and that amount never changes for them, as that is what they received, and that is what they will repay. TRANSACTION: Company Sells or Buys 100-currency-units worth of stuff, denominated in a foreign currency, on January 1, with 90-day terms. $Functional Foreign Record SALES / EXPORTS Currency Currency What $ Does: What we get: Foreign Exch. Because: Date of sale - January 1 1.00 1.00 We recorded $100 A/R in our functional currency, but Date of payment - April 1 1.00 0.90 than expected Foreign Currency pays us 100-Fo which is now worth $ Date of sale - January 1 1 Date of payment - April 1 1.00 1.00 1.00 1.10 We recorded $100 A/R in our functional currency, but Foreign Currency pays us 100-Fo which is now worth $ than expected What we pay: PURCHASES / IMPORTS Date of sale - January 1 Date of payment - April 1 1.00 1.00 1.00 0.90 We recorded $100 A/P in our functional currency, but we will have to pay $ $ ____ to make our vendor whole. than expected Date of sale - January 1 Date of payment - April 1 1.00 1.00 1.00 1.10 We recorded $100 A/P in our functional currency, but we will have to pay $ to make our vendor whole. than expected Note that the gain or loss that we get is a 'foreign exchange gain/loss', and it is part of income from continuing operations ("above the line") TRANSACTION: Company loans 100-currency-units to its subsidiary, denominated in their local currency (LCU=Local Currency Unit) $Functional Foreign INTERCOMPANY LOAN Currency Currency What $ Does: Lender's Books: The lender will record, when the books are closed quarterly: Loan - January 1 1.00 0.90 March 31 1.00 0.85 a gain; sub repays 100-LCU's; we get more of our Functional Currency June 30 1.00 0.95 a loss; sub repays 100-LCU's; we get less of our Functional Currency September 30 1.00 1.05 a loss; sub repays 100-LCU's; we get less of our Functional Currency. December 31 1.00 1.02 a gain; sub repays 100 LCU's; we get more of our Functional Currency. Repayment - January 1 1.00 1.02 Note that the borrower records 100 LCU's and that amount never changes for them, as that is what they received, and that is what they will repay