Why Is the Accrual Method of Accounting for Unrealized Foreign

question 14

Multiple Choice

Why is the accrual method of accounting for unrealized foreign exchange gains sometimes criticized?

• A) Foreign exchange gains almost never occur, so there is no reason to have an accounting standard for it.
• B) It violates the principle of conservatism.
• C) It is not objective.
• D) There is no reliable method for measuring unrealized foreign exchange gains.

Understand the components and significance of the balance of payments accounts.

Examine how currency valuation affects international investment flows and trade balances.

Understand the transition from the U.S. being a creditor nation to becoming a debtor nation and its implications.

Analyze the relationship between personal savings rates and the current account balance.

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Definitions:

Years From Now

A temporal reference indicating a certain amount of time in the future from the current point.

Real Wages

Nominal wages corrected for inflation.

Money Wages

The current dollar amount of a person’s wages.

Consumer Price Index

The most important measure of inflation. This tells us the percentage rise in the price level since the base year, which is set at 100; represented by CPI.