Foreign Exchange Exposure Management and the Impact of FASB Statement No. 8

Date of Submission


Document Type


Degree Name

Master of Science in Accounting




Philip V. Gerdine


Foreign exchange--Accounting, International business enterprises--Accounting

Call No. at the Univ. of New Haven Library

AS 36 .N29 Acc. 1981 no.5


A multinational corporation and its subsidiaries are exposed to the possibility of incurring foreign currency-related gains or losses due to exchange rate fluctuations. Foreign exchange exposure management is the on-going financial management process by which a multinational corporation adjusts the amounts of its assets, liabilities and profits exposed to losses due to exchange rate fluctuations. The Financial Accounting Standards Board Statement No. 8 requires all United States companies to adhere to the temporal principle of translation.

First, the foreign exchange exposure protection program on an actual basis for FASB No. 8 and on a projected basis for possible hedging was discussed. In order to provide management with timely information regarding the MNC and its subsidiaries foreign exchange exposure and expected earnings impact, the computer science technology must be employed. The EDP application in accounting processes was illustrated.

Second, the impact of FASB No. 8 on corporate management practices was reported. Theoretically, FASB No. 8 requirements should not have any impact on the financial management practices of the MNCs involved, since the requirements deal only with accounting procedures and not with management actions. However, there is much evidence that choice of accounting methods has influenced the management behavior being accounted for. Various comments on FASB No. 8 from the field study have been discussed.

Lastly, the new Exposure Draft of Proposed Statement, "Foreign Currency Translation" dated August 28, 1980, was summarized and where appropriate, compared or contrasted the proposed changes with FASB No. 8, with some of the potential implications.