Professor Elam

Monday Sept 8, 2014

The British Pound slumped in value on the results of a  new poll showing increased support for Scottish INdependence. I have been urging student to read current events for better contextual understanding of accounting. Here are the logical questions about this event.

How is it that Scottish Independence is stirring now, see the link to socionomics in the sidebar.

Why did the Pound slump on the suggestion Scotland may break away?  (Yes there was an article in the WSJ explaining this a couple of days ago)

WHat does this have to do with accounting?  The answer is that companies doing business overseas have to account for currency translations in Other Comprehensive Income, a segment of Shareholder Equity. If your company was bringing profits back that were denominated in Pounds, how would this slump affect your bottom line?  

Could or should you have hedged for this possibility?  How do hedges work for or against the firm?   How doesone enter such a transaction?  You will recall that I gave you a link in the syllabus to the CME book that explains such transactions. Have you examined it yet?  Have you printed it out?

Accounting is  a great deal more than just book keeping of yore. Today's accountant must be well versed in internatonal currency trading and hedging.