Case 1-1 Besserbrau AG:

Reply to this. Why is it risky to do business in a country with a different currency? Is the below assessment correct?

International companies are usually faced issues dealing with taxation and hedging of risks. These are international risks that they may face while doing business internationally.

Besserbrau AG has grown internationally and is selling its products to foreign customers. Given the company operations are in Germany the operation currency is the Euro while an expansion to China means an introduction to another currency is the Yuan. Therefore, Bessserbau AG must account for the sales transaction while consolidating the sales the company must convert the sales into Euro. The risk that comes with foreign operations means that companies who have international operations need to hedge against the risks. The risks come as a result of fluctuation in the currency that means that the exchange rates will not be the same involving the Euro and the Yuan. For example, if customers pay for the purchases in the local currency as the rates differ from time to time, the company should hedge this risk by, for example, entering an options contract or a currency forward contract. There is a breach in regulations when the company is issuing new shares for investing the fund in the construction of Brewery China, the company does not translate the currency for accounting purposes, as a requirement company should translate the company. They currency when consolidating the financial statements.In a situation where the company is evaluating the performance of the foreign subsidiaries, the currency for use should be in Euros. They go against the regulations when evacuating performance as the home currency is not put into consideration.