Exchange loss refers to the actual or potential loss caused by the exchange rate change of foreign currency against local currency in transnational transactions. This kind of loss usually occurs when it is denominated in foreign currency or the original currency depreciates. The following is a more detailed explanation of exchange losses.
1. What is exchange loss?
Exchange loss refers to the actual or potential loss caused by the change of foreign currency exchange rate. When the domestic currency depreciates, foreign currency-based transactions will lead to increased costs or decreased value-added.
Second, the types of exchange losses
Capital exchange loss: investment loss caused by changes in foreign exchange rate. Operating exchange losses: losses caused by foreign exchange involved in the business activities of multinational companies. Translation exchange loss: the loss caused by exchange rate fluctuation caused by the merger or linkage of multinational enterprises.
3. How to calculate the exchange loss?
The calculation of exchange loss depends on the exchange rate at the time of transaction, the settlement date and the country and industry where the company is located. Direct method: after adding the monetary amounts of foreign currency and local currency, the exchange loss is calculated by the exchange rate. Indirect method: exchange loss is calculated by difference accounting or scalar accounting.
Fourth, how to avoid exchange losses?
Adopt insurance strategy: hedge foreign currency assets and liabilities (that is, the coordination of costs and benefits). Narrow business scope: concentrate business, invest in specific markets, and reduce foreign exchange impact and losses. Use of derivatives: such as options, futures contracts, etc. Can be used to protect or hedge exchange losses.
In a word, exchange loss is a difficult problem that multinational enterprises must face in the transaction process, but it also helps enterprises to improve their global competitiveness and gain greater opportunities in the global market. Understanding the importance, types, calculation methods and avoidance strategies of exchange losses is the knowledge that the management of multinational enterprises must master.
The influence of verb (abbreviation of verb) on exchange loss
Exchange losses will affect enterprises, especially export-oriented enterprises, in the short and long term. Short-term impact: exchange loss will directly reduce the company's net profit and increase the uncertainty of cash flow. Long-term impact: Long-term exchange loss may lead to enterprise capital gap and business activity risk.