FX translations for dummies

R

rexthedog

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
whilst I feel pretty comfortable generally with Multinational operations and the process of translation, I would be really greatful if someone could give me a more intuitive understanding of how FX impacts payments liabilitiies, general exposure etc.
For example why does a liability in strengthening currency result in a foreign exchange loss. etc and who is this impacting, the parent or the subsidiary. FX appreciation/depreciation bothers me with respect to who benefits and why.
Thanks
 
First, whatever impacts the subsidiary impacts also the parent. The latter will have to consolidate these results with its results.
If your salary is in USD and you have a liability in EUR, when euro appreciates you will need to convert more dollars to pay your liabilities. So you are worse off.
 
Think about the folks in Eastern Europe and Russia who were convinced to borrow Swiss francs to buy real estate: imagine their surprise when the franc appreciated and their monthly payments in their local currency went waaaaaaay up. That’s how you get a foreign exchange loss on a financial liability.
 
I try to think about transaction exposure in terms of “where the money is”.
If I sell something in another country, and I’m not going to be paid for 90 days, my money is over there. Thus my money over there is exposed to changes in the exchange rate 90 days from now. If the currency in the other country appreciates vs my currency, my money (over there still) gained value while waiting! Yay! But if the opposite happens, my money over there loses value. Booo!
If I buy something from another country, and I won’t pay for it for another 90 days, my money is here. Thus my money here is exposed to changes in the exchange rate 90 days from now. If the currency in the other country appreciates vs my currency, my money (here still) lost value while waiting (it will take more of my currency to pay for the stuff I bought)! Booo! But if the opposite happens, my money here gains value. Yay!
 
I use the following logic to answer such questions.
+ is appreciation, asset and gain
- is depreciation, liability, loss
Given two scenarios, the gain/loss can be deduced by multiplication rule without financial knowledge.
So +ve times -ve equals negative.
-ve times -ve equals positive.
Try it. For example, depreciation paired with liability (both are negative) results in gain…
 
Thanks krok, and again this is in relation to the parent company right? the gains and losses.
@jaywill, thanks that does clear things up i think.
I’m gonna try some questions on this tomorrow and if I’m still struggling i’ll holla back on this thread again.
Appreciate all your help over the last few weeks and the quick responses.
 
You must log in or register to reply here.
Back
Top