ASC 830 provides guidelines on how to determine the functional currency of an entity. This is typically an election made by management based on the economic environment in which the company operates — but the process is more complex than that.
Treasuries use cash pooling — also known as a cash sweeping system — to provide liquidity to legal entities, aggregate cash for investment or to accelerate debt repayment.
How and why companies hedge foreign currency risk depends on factors such as the industry, risk management acumen and management team perspective. But most public corporations do hedge their FX risk for one reason or another.
In order to mitigate foreign currency gains and losses, companies routinely hedge away currency risk associated with balance sheet exposures. Companies need to identify all monetary accounts on the balance sheet and aggregate the foreign amounts in those accounts.
Balance Sheet Exposures Balance sheet exposures are the drivers of the FX Gains and Losses that impact earnings every month. They are monetary accounts like cash, accounts receivable, accounts payable, inter-company balances and more that are denominated in foreign currencies, so their values fluctuate and they are reported as gains/losses on a company’s financials. The […]