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Fraser this is actually pretty logical. If you have a net asset exposure and the local currency appreciate than you have a gain. Lets say you own a factory in Brazil and the Real appreciates. You could sell the factory (you would get paid in Reals),but since the Real appreciated, you would have again, when you converted back to dollars for example.

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Fraser,
All Current - exposure is Net Assets (foreign currency depreciates you lose, if it appreciates you win)

Temporal - exposure is usually Net Monetary Liability (usually Monetary Assets < Monetary Liability, watch for that on the exam since debt could be 0, and Cash+AR>AP i.g.). If foreign currency depreciates you win because your liability shrinks, and if appreciates you lose.

Fraser Wrote:
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> This is what makes me mad. I know how to convert
> using the Current rate method and the Temporal
> method. I'm having trouble memorizing the table
> that shows exposure to X will cause a gain/loss
> when the LC is Appreciating/depreciating.
>
> Chances are on the exam they're just going to show
> net monetary assets or something and the currency
> rates and ask if there is a gain or loss. Someone
> who just knows the table is getting it right and
> I'm probably getting it wrong even though I
> probably put in more work.

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I want to get this whole process done as soon as possible.....so I want as easy a test as possible please!

As a repeater I'm done with the self-learning aspect in terms of this level at least. I just want to get on to level 3. There is a minimum passing score, whoever gets over that will pass, regardless of how difficult it is.

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I am sure. Net Monetary Asset and Net Monetary Liability are interchangeable.
Negative Net Monetary Asset becomes Net Monetary Liability and the other way around.

Your notes are correct as well.

The key word for Temporal case is that USUALLY we have Net Asset Liability exposure (the example of exception to that in case of Net Monetary Asset exposure is given in my post).

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When subsidiary have net monetary asset and currency appreciates, then the parent company gains and vv.

When subsidiary have net monetary liability and currency of subsidiary is appreciating, then its a loss to parent in the income statement.


Actually that's the difference between net income (all current) and net income (temporal)

If there's a net monetary liability and the currency of subsidiary appreciates, then it means it costs the parent company more, thus it is a loss which decreases the net income of the parent company.

I hope this helps.

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