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According to the Course Text, trade across international markets has grown tremendously and represents a significant portion of the world economy. This increase in international trade has been accompanied by an increase in trade across the foreign exchange (FX) market. As with any trade and investments, trade and investments in the FX market pose a risk for multinational companies as well as for investors. The FX market is by nature inherently risky, and risks such as those associated with exchange rates and interest rates require companies and investors to effectively assess, manage, and reduce risk. To do so, international managers can use instruments such as foreign currency transactions, hedging foreign exchange risk, and accounting for derivatives. Consider how international managers utilize these instruments to manage risks when operating in international markets. Think about how publicly traded multinational companies report these types of instruments and transactions to users of financial statements.
Write a 2- to 3-page paper analyzing how each of the following instruments can be used by international managers to better manage risks when operating in FX markets: foreign currency transactions, hedging foreign exchange risk, and accounting for derivatives. In your analysis, explain how publicly traded multinational companies report these types of instruments and transactions to users of financial statements.