Final answer:
Gains/losses on foreign exchange transactions occur when the value of one currency changes relative to another currency. When the exchange rate for a currency rises, it has strengthened or appreciated, and when it falls, it has weakened or depreciated. Companies engaged in international trade may experience gains or losses depending on exchange rate movements.
Step-by-step explanation:
Gains/Losses on Foreign Exchange Transactions
In the foreign exchange market, people and firms exchange one currency for another. Gains and losses on foreign exchange transactions occur when the value of one currency changes relative to another currency. If the exchange rate for a currency rises, so that the currency can buy more of another currency, it has strengthened or appreciated. On the other hand, if the exchange rate for a currency falls, so that the currency can buy less of another currency, it has weakened or depreciated.
When a company engages in international trade, it may need to exchange currencies to pay for goods or receive payment for exports. The company will experience gains or losses on foreign exchange transactions depending on the exchange rate movement between the time of the transaction and the time the currency is converted back to the company's home currency.