A U.S.-based company purchases merchandise on account from a company in Mexico. The purchase contract is denominated in pesos. If the peso decreases in value relative to the dollar, the purchaser will record a ________. The peso ________ relative to the dollar.
A)Foreign Currency Transaction Loss; weakens
B)Foreign Currency Transaction Loss; strengthens
C)Foreign Currency Transaction Gain; weakens
D)Foreign Currency Transaction Gain; strengthens

Question

Quizplus · Accepted Answer

If the peso decreases in value relative to the dollar, the U.S.-based company will need fewer dollars to settle the same amount of pesos, resulting in a foreign currency transaction gain.

A US-Based Company Purchases Merchandise on Account from a Company in in Mexico