A U.S.-based company sells merchandise on account to a company in Mexico. The Mexican company wants to pay for the merchandise in pesos. If the peso decreases in value relative to the dollar, the seller will record a ________. The peso ________ relative to the dollar.
A)Foreign Currency Transaction Gain; weakens
B)Foreign Currency Transaction Gain; strengthens
C)Foreign Currency Transaction Loss; weakens
D)Foreign Currency Transaction Loss; strengthens

Question

Quizplus · Accepted Answer

If the peso decreases in value relative to the dollar, the U.S.-based seller will receive less in dollar terms when the payment is made, resulting in a foreign currency transaction loss.

A US-Based Company Sells Merchandise on Account to a Company in in Mexico