As described in the text, gains and losses on foreign currency borrowings can be used to hedge the net investment in a foreign subsidiary. How are these reported in the consolidated financial statements? In addition, what other techniques may a company use to hedge net investments? Develop a 200-to-300-word analysis supporting your position.
Part 2
If you work for a publicly traded company, download the company’s annual report. If you do not work for a publicly traded company, download the annual report of one of your favorite brands (e.g., Apple or Dell). Search through the report and look for the section regarding “managing risk” (it may be under a different name, but it is in there). Describe how this company uses hedges or contracts to manage currency risk.
Requirements: 2 pages
Answer preview
Beyond recording the gains or losses that an entity is likely to realize from its business aspects that depend on foreign currency transactions, it is important to appreciate the various mechanisms that a business can utilize to hedge its net investments. Other options are forwards, futures, money market hedges, options, and currency swaps (Kumar, 2018). Forwards are agreements to buy a specified amount of currency at a given date in the future for an agreed rate. Futures are quite similar to forwards but are more formal and are traded in more regulated markets. The third option is to borrow and deposit money, thus taking advantage of the money
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