Perkle Co. owned a subsidiary in Belgium; the subsidiary's functional currency was the Belgian franc. During 2018, Perkle engaged in hedging transactions to offset part of the subsidiary's net asset position. How should the effects of exchange rate fluctuations on the currency hedge be accounted for?
What will be an ideal response?
Any effect on the contract resulting from exchange rate fluctuations is classified as a translation adjustment, rather than as a foreign exchange gain or loss.
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