Question

U.S. based General Motors has a Japanese yen receivable resulting from its export sale of goods...

U.S. based General Motors has a Japanese yen receivable resulting from its export sale of goods to Japan and a Brazilian real payable resulting from its import purchases from Brazil. General Motors recorded foreign exchange gains related to both its yen receivable and real payable. Did the foreign currencies increase or decrease in dollar value from the date of the transaction to the settlement dates?

YEN REAL

a. Increase Increase

b. Decrease Decrease

c. Decrease Increase

d. Increase Decrease

Homework Answers

Answer #1

Dollar value is the value that 1$ can buy of respective currencies.

The company has YEN receivable, therefore, recording forex gain denotes that the company has gained more advantage in terms of its receivable. It also means that the dollar value has decreased.

The company has REAL payable, therefore, recording forex gain denotes that the company has gained more advantage in terms of its payable i.e. it has to pay less amount. It also means that the dollar value has increased. In other words, it will have to pay less dollar to fetch the same amount of REAL.

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