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CMA Intermediate · Financial Accounting · The Effects of Changes in Foreign Exchange Rates (AS 11)

According to the Objective of AS 11, in which two ways may an enterprise carry on activities involving foreign exchange?

AS 11 says an enterprise can be involved in foreign exchange activity either by entering into transactions in foreign currencies or by having foreign operations. Both must be reflected in the financial statements in the enterprise's reporting currency, so these are the two ways recognised by the standard.

  1. AThrough foreign currency transactions or through foreign operationsCorrect
  2. BThrough export sales or through import purchases only
  3. CThrough forward contracts or through currency swaps
  4. DThrough foreign borrowings or through foreign investments only

Explanation

The Objective paragraph states that an enterprise may have transactions in foreign currencies or it may have foreign operations. The other options list particular examples or instruments, not the two ways the standard identifies.

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