Final answer:
The two major challenges in accounting for international operations include coping with currency fluctuations that affect costs and revenues measured in different currencies, and navigating complex taxation issues across different national jurisdictions.
Step-by-step explanation:
Two major challenges in accounting for international operations are currency fluctuation and taxation issues. First, firms often find that their costs for workers, suppliers, and investors are denominated in the currency of the nation where their production occurs, while their revenues from sales are in a different currency where the sales happen. This currency mismatch can lead to exchange rate risks. For example, a Chinese firm exporting will earn U.S. dollars but needs Chinese yuan to pay its local costs. In the foreign exchange markets, this firm is a supplier of U.S. dollars and a demander of Chinese yuan.
Second, taxation poses a considerable challenge due to the differences in national tax systems. National governments impose their own taxes, and international transactions may be subject to different tax treatments. Firms like those in the Grand Caymans can find loopholes by operating in a nation with less stringent financial regulations, complicating the international financial flow. In an interconnected global economy, the flow of payments for goods and services is inseparable from other financial capital movements, which makes it difficult for nations to impose controls or taxes selectively.