Reference no: EM133240097
In your assigned reading you reviewed the accounting implications related to foreign currency transactions and how to hedge the inherent risks. In this discussion we will focus the challenges and effectiveness of hedging those risks. Before you respond to the question posed below, review this excerpt from Microsoft's Annual Report:
"We use derivative instruments to manage risks related to foreign currencies, equity prices, interest rates, and credit; to enhance investment returns; and to facilitate portfolio diversification. Our objectives for holding derivatives include reducing, eliminating, and efficiently managing the economic impact of these exposures as effectively as possible.
Our derivative programs include strategies that both qualify and do not qualify for hedge accounting treatment. All notional amounts presented below are measured in U.S. dollar equivalents."
Discussion Question
What are the accounting challenges involved with using derivatives to mitigate foreign currency risk?
As the discussion continues you are encouraged to pose additional questions, identify related articles which provide new or supporting information, and tie in similar accounting practices that confirm or challenge our analysis.
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