1. 1 Financial Markets

2. 2 The Market for Currencies The price of any one country’s currency in terms of another country’s currency is called a foreign currency exchange rate Every market, every country, and every firm may have its own set of currency symbols

3. 3 What is a Currency Worth? The exchange rate between currencies should equalize its purchasing power The theory of purchasing power parity (PPP) is simply the rate that equalizes the price of the identical product or service in two different currencies

4. 4 Multinational Investing An investment is financially justified if it has a positive net present value (NPV).

5. 5 Risks in International Investments Risks are higher for international investments than domestic investments. The risk arises from the different countries, their laws, regulations, potential for interference with the normal operations of the investment project, and currencies. Foreign governments have the ability to pass new laws, increasing risk for a parent company. Another risk issue is that the viewpoint or perspective of the parent and the project may no longer be the same.

6. 18-6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall International Accounting Issues

7. 18-7 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Accounting for International Differences Accounting standards and practices vary around the world Both the form and the content of financial statements are different in different countries

8. 18-8 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Cultural Differences in Accounting Culture can have a strong influence on the accounting dimensions of measurement and disclosure The cultural values of secrecy and transparency refer to the degree of disclosure of information The cultural values of optimism and conservatism refer to the valuation of assets and the recognition of income

9. 18-9 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Financial Statements Financial statements differ in terms of: – language – currency – type of statements (income statement, balance sheet, etc.) – financial statement format – extent of footnote disclosures – the underlying GAAP on which the financial statements are based Major approaches to dealing with accounting and reporting differences: – Mutual recognition. – Reconciliation to local GAAP. – Recasting of financial statements in terms of local GAAP.