westfield us valuations down thirty five pcent, page-10

Haka

True, a natural hedge exists for financing if the U.S. assets are financed with U.S. borrowings. The U.S. dollar income stream can be used to meet the interest and debt repayments.

However, what I am talking about is in relation to FX transaltion gains or losses that can arise when assets paid for in U.S. dollars are recorded in the balance sheet in Aussie dollars. If you purchased an asset for US$100 when the AUD/USD rate was 0.96 it would be recoded at its AUD cost of AUD$104. If the AUD/USD rate falls to 0.86, the asset would be recorded at AUD$116.

Financial Accounting would require the difference of AUD$12 to be brought to account in the P&L as an unrealised FX gain of AUD$12.

This assumes that the reporting entity's functional currency is AUD and that the currency exposure is not hedged. Hedging usually occurs in relation to foreign denominated debt (unless there is a natural hedge), not assets.