Currency translation

CFA Level II FRA
#1

Ok, say we’re using the temporal method and the local currency in increasing relative to the functional currency. Monetary assets - monetary liabilities for current year is -1,000LC. However, the previous year the difference was -1,500, so there has been a change in exposure of +500.

In the above, will the translation gain be negative (as we have a negative BS exposure this year) or positive (because the change in exposure is positive)?

For the current rate method, if there’s positive exposure but the LC has declined, will there be a negative CTA? I read on another discussion (2009) that the CTA will always be positive if there’s a positive exposure, never mind the direction of the FX rate.

#2

You should have a loss in that case. Don’t worry about the previous year as the exposure would have been accounted for that year. In this fiscal year, you’ve got a $1000 liability exposure and an appreciating local currency; the liability is getting bigger; therefore, you’ve got a loss.

#3

you can think it of as - you have to pay money so net exposure wil be less or more maknig u owe less or more, that is reason here.

-1,000LC - this means that you owe money so if currency weakens you owe less

CTA i m not sure of, but that should take in many effects.