ACCOUNTING POLICIES FOR EXCHANGE GAINS AND LOSSES ON LONG-TERM MONETARY ITEMS

Accounting standards and exposure drafts on foreign currency translation have differed in their recommended treatment of unrealised exchange gains and losses on long-term monetary assets and liabilities of domestic firms denominated in foreign currencies. This paper compares the immediate recognition method (U.S. and U.K.) to the defer and amortise method (Australia and Canada) with respect to their effects on net income, asset and liability measurement. Reasons why management will be concerned with the financial statement effect of exchange rate changes are advanced and these, together with the empirical analysis of the competing accounting methods, help explain the evident support the Australian corporate sector has shown for the defer and amortise method.     

THE INFLATION ADJUSTMENT OF CORPORATE ACCOUNTS: THE CASE OF MONETARY ITEMS

This paper investigates the sensitivity of the computed loss from holding monetary items to alternative numerical estimating techniques. Using data from 38 companies for the fiscal year 1980-81, we find that estimation of the loss from holding monetary items is robust with respect to the calculating technique utilized, provided the monetary base is broadly defined. The implications of this for “market model” type studies of the impact of inflation adjustments are discussed.     

中国金融深化的实证检验

本文通过对改革以来我国金融深化的实证检验得出了以下结论:现阶段利率对经济的弹性低的直接原因是,长久以来国有企业投融资体制的预算软约束;我国金融储蓄与利率之间具有明显相关性;金融深化的主要原因是边际上的,即由银行等金融中介机构提供的新投资的增量.这些结论表明改革以来我国金融深化的程度虽然有了很大提高,但资金的利用效率反而持续下降,从经济改革总体进程而言,利率改革的滞后已成为企业改革、银行商业化改革进一步深化的瓶颈.利率体系的僵化是导致资金使用效率低下的重要原因之一,如何推进利率市场化改革,发挥利率政策的作用应该成为下一阶段研究的重点.     

CONVERTIBLE BOND VALUATION: AN EMPIRICAL TEST

This research applies the options pricing model to the valuation of convertible bonds. A numeric algorithm is used to obtain theoretical values for a sample of 103 convertible bond issues. When market prices are compared with model valuations, the means are not significantly different, and 90 percent of model predictions are within 10 percent of market values. As a further test, the sample is divided on the basis of whether the model prices are (1) greater or (2) less than market prices. Returns are compared over a subsequent three-year holding period. The results indicate that without risk adjustment, the returns for the subsample identified by the model as “undervalued” (model prices exceed market prices) are significantly greater than returns for the subsample identified by the model as “overvalued” (market prices exceed model prices).     

THE RELATIONSHIP BETWEEN THE VARIABILITY OF INFLATION AND STOCK RETURNS: AN EMPIRICAL INVESTIGATION

Several researchers find a negative correlation between the rate of inflation and stock returns. This phenomenon may be explained by the variability hypothesis, which posits that the negative correlation is caused by the combination of a positive relation between the rate of inflation and the variability of inflation and a negative relation between the variability of inflation and stock returns. An autoregressive conditional heteroscedastic model of inflation is used to measure the variability of inflation. Empirical results do not support the ability of the variability hypothesis to explain the negative correlation between stock returns and inflation.     

MONETARY ITEMS AND THE GEARING ADJUSTMENT: WHERE ARE WE?

As part of its attempt to make an operational Current Cost Accounting standard, the Australian Accounting Research Foundation has issued two exposure drafts dealing with the treatment of monetary items. This article evaluates these drafts with special reference being made to overseas developments. Crucial conceptual and operational flaws are found to be inherent in the Foundation's recommendations.