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Chapter 11 - Multinational Accounting: Foreign Currency Transactions And Financial Instruments
E11-3 Basic Understanding of Foreign Exposure
a. If the direct exchange rate increases, the U.S. dollar weakens relative to the foreign
currency unit. If the indirect exchange rate increases, the U.S. dollar strengthens relative
Settlement
Direct Exchange Rate
Indirect Exchange Rate
Transaction
Currency
Increases
Decreases
Increases
Decreases
Importing
Dollar
NA
NA
NA
NA
Importing
LCU
L
G
G
L
Exporting
Dollar
NA
NA
NA
NA
Exporting
LCU
G
L
L
G
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