Accounting for exchange rates

CFA Level II
#1

Quick question -

If you are asked to translate currency from one to the other…lets say from US dollar to Canadian dollar… and the US dollar is depreciating versus the Canadian dollar, why would sales be lower due to the US dollar depreciating? I would assue that if the US dollar is depreciating, the canadian dollar is appreciating, and when translating sales from US to Canadian, it would rise with the appreciation of the Canadian dollar? I think I just need clarifcation, and just to follow up, exchange rates are my weak point, I have a mental block with them, so handle me with care…ha thanks guys

#2

if you are translating from US to CAD, the presentation currency is CAD (usually a canadian company). if your sales are in USD and the USD are worth less (in CAD terms), then these sales would be worth less to the canadian company (in CAD).

#3

so the appreciating canadian dollar would not inflate sales?

#4

no, the appreciating dollar deflates sales.

let’s say today USD/CAD is 1.00 and in one year it is 2.00 (the CAD has appreciated)

today you sell USD1000 of goods. that’s worth CAD 1000.

what is that worth in one year in CAD? CAD 500

#5

got it, awesmoe thanks lemiman!