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Definition: Foreign Currency Transaction Gain Loss
Foreign currency transaction gain/loss plays a major in analysis of foreign operations for multinational firms. If the interest rates are high in a particular country, there will be foreign exchange transaction loss when the MNC wants to establish operations over there. Similarly, if the interest rates are low, there will be foreign exchange currency transaction gain.
The interrelation between interest rates and foreign currency exchange plays a vital role in determining the necessary investment and change in financial structure for a business venture. The exclusion of foreign exchange loss or gain will give misleading performance result for an MNC.
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