Page 8 - Finac 1 - Topic 2 - 1. The Effects of Changes In Foreign Exchange Rates

THE EFFECTS OF CHANGES IN FOREIGN EXCHANGE RATES

Definitions

• Average rate: average exchange rate over a specified

period

• Monetary items – units of currency held, and assets and
liabilities to be received or paid, in a fixed or determinable

number of units of currency, for example, bank accounts,

fixed deposits, trade receivables, loans, and trade

payables.

• Non-monetary items – the essential feature is the
absence of a right to receive (or an obligation to deliver) a

fixed or determinable number of units of currency, for

example inventories and property, plant and equipment.

• Fair value – the price that would be received to sell an

asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date.

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