The combined effect of an exchange-rate change on the financial statements of a foreign subsidiary is neither a gain nor a loss because of accounting rules.

Question

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Accounting rules require foreign currency transactions to be recorded at the exchange rate prevailing at the transaction date. Any subsequent exchange rate changes lead to gains or losses, which are recognized in the financial statements of the foreign subsidiary. Therefore, the combined effect of an exchange-rate change on the financial statements of a foreign subsidiary is a gain or a loss, not neither a gain nor a loss.

The Combined Effect of an Exchange-Rate Change on the Financial