Analyse the possible impact of currency movements on results, given the countries where a company operates
The idea
Currency risk depends on where a company sells, where it produces and which currency its costs and debts are in. A company that earns revenue abroad but incurs costs at home gains when foreign currencies strengthen; one that sells at home but buys inputs abroad loses. Sensitivity disclosures, which state the effect on profit or equity of a given move in each currency, let the analyst estimate the impact of a forecast move: impact equals the disclosed sensitivity scaled by the size of the expected move. Current rate translation goes to equity via OCI, transaction effects to profit. The trap is ignoring the direction of the natural hedge between revenue and cost currencies.
In the app: 2 practice questions on this outcome, a narrated walkthrough with diagrams, spaced review that brings it back before you forget it.
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