Question

2. Brown Corp. had a Polish Złoty (PLN) receivable resulting from exports to Poland and a Malaysian Ringgit (MYR) payable resulting from imports from Malaysia. Brown reported foreign exchange gains related to both the PLN receivable and MYR payable. Did the foreign currencies increase or decrease in USD value from the day of transaction to the settlement date? EXPLAIN WHY!!!!

PLN	MYR

Answer 1

Foreign currency appreciates in case of PLN receivable transactions because, there is a gain on receivables which means foreign currency appreciates in terms of dollar. for example 1 dollar is of 25 PLN and total value of receivables is 100 PLN. at the time of transaction foreign exchange rate was (1/25) .04 dollar but at settlement PLN appreciates and it value in terms of dollar is 1 dollar = 20 PLN so now 1 PLN = 1/20 = .05 dollar so total value would be received in dollar would be (100*.05) 5 dollar in comparison of (100*.04) = 4 dollars so there would gain on receivables

Another case in is of payable to Malaysia in this case if the currency MYR depreciates it would be favorable to USA as it would need to pay less dollars to buy the MYR and there would be gain on payment.