dseco
dtra
slatefromthefu
ctio
alcurre
cyi
tothereporti
gcurre
cyusi
gthecurre
tratemethodoftra
slatio
5Itisge
erally
otpossibletocompletelyelimi
atebothtra
slatio
exposurea
dtra
sactio
exposureI
somecasestheelimi
atio
ofo
eexposurewillalsoelimi
atetheotherButi
othercasestheelimi
atio
ofo
eexposureactuallycreatestheotherDiscusswhichexposuremightbeviewedasthemostimporta
ttoeffectivelyma
ageifaco
flictbetwee
co
trolli
gbotharisesAlsodiscussa
dcritiquethecommo
methodsforco
trolli
gtra
slatio
exposure
A
swerSi
ceitisge
erally
otpossibletocompletelyelimi
atebothtra
sactio
a
dtra
slatio
exposurewerecomme
dthattra
sactio
exposurebegive
firstprioritysi
ceiti
volvesrealcashflowsThetra
slatio
processo
theotherha
dhas
odirecteffecto
reporti
gcurre
cycashflowsa
dwillo
lyhavearealizableeffecto
eti
vestme
tupo
thesaleorliquidatio
oftheassets
IM2
fTherearetwocommo
methodsforco
trolli
gtra
slatio
exposureabala
cesheethedgea
daderivativeshedgeThebala
cesheethedgei
volvesequati
gtheamou
tofexposedassetsi
a
exposurecurre
cywiththeexposedliabilitiesi
thatcurre
cysothe
etexposureiszeroThuswhe
a
exposurecurre
cyexcha
geratecha
gesversusthereporti
gcurre
cythecha
gei
assetswilloffsetthecha
gei
liabilitiesTocreateabala
cesheethedgeo
cetra
sactio
exposurehasbee
co
trolledofte
mea
screati
g
ewtra
sactio
exposureThisis
otwisesi
cerealcashflowlossesca
resultAderivativeshedgeis
otreallyahedgebutratheraspeculativepositio
si
cethesizeofthe“hedge”isbasedo
thefutureexpectedspotrateofexcha
gefortheexposurecurre
cywiththereporti
gcurre
cyIftheactualspotratediffersfromtheexpectedratethe“hedge”mayresulti
thelossofrealcashflows
IM3
fPROBLEMS
1AssumethatFASB8isstilli
effecti
steadofFASB52Co
structatra
slatio
exposurereportforCe
traliaCorporatio
a
ditsaffiliatesthatisthecou
terparttoExhibit107i
thetextCe
traliaa
ditsaffiliatescarryi
ve
torya
dfixedassetso
thebooksathistoricalvalues
Solutio
Thefollowi
gtableprovidesatra
slatio
exposurereportforCe
traliaCorporatio
a
ditsaffiliatesu
derFASB8whichisesse
tiallythetemporalmethodoftra
slatio
Thediffere
cebetwee
the
ewreporta
dExhibit107isthat
o
mo
etaryaccou
tssuchasi
ve
torya
dfixedassetsaretra
slatedatthehistoricalexcha
gerateiftheyarecarriedathistoricalcostsThustheseaccou
tswill
otcha
gevalueswhe
excha
geratescha
gea
dtheydo
otcreatetra
slatio
exposure
Exami
atio
ofthetablei
dicatesthatu
derFASB8thereis
egative
etexposurefortheMexica
pesoa
dtheeurowhereasu
derFASB52the
etexposureforthesecurre
ciesispositiveThereis
ocr