Exam 11: Translation Exposure

Under the current rate method, specific assets and liabilities are translated at exchange rates consistent with the timing of the item's creation.

If the same exchange rate were used to remeasure every line on a financial statement, then there would be no imbalances from remeasuring.

Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional currency, then

A foreign subsidiary's ________ currency is the currency used in the firm's day-to-day operations.

A balance sheet hedge is the main technique for managing ________.

The basic advantage of the ________ method of foreign currency translation is that foreign nonmonetary assets are carried at their original cost in the parent's consolidated statement while the most important advantage of the ________ method is that the gain or loss from translation does not pass through the income statement.

The current rate method of foreign currency translation gains or losses resulting from remeasurement are carried directly to current consolidated income and thus introduces volatility to consolidated earnings.

Gains from forward contracts to hedge translation exposure are taxable whereas losses from hedging translation exposure are not.

The biggest advantage of the current rate method of reporting translation adjustments is the fact that the gain or loss goes directly to the reserve account on the consolidated balance sheet and does not pass through the consolidated income statement.

The temporal method of foreign currency translation gains or losses resulting from remeasurement are carried directly to current consolidated income and thus introduces volatility to consolidated earnings.

The two basic methods for the translation of foreign subsidiary financial statements are the ________ method and the ________ method.

If a European subsidiary of a U.S. firm has net exposed liabilities of euro 500,000, and the euro increases in value from $1.30/euro to $1.35/euro then the U.S. firm has a translation ________.

If an imbalance results from the accounting method used for translation, the imbalance is taken either to ________ or ________.

If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound increases in value from euro 1.40/£ to euro 1.45/£, the European firm has a translation ________.

U.S. multinational firms must use ________ as their functional currency.

Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in U.S. dollars,

Which of the following is NOT an economic indicator used by FASB for determining a subsidiary's functional currency?

Translation exposure may also be called ________ exposure.

It is possible to use different exchange rates for different line items on a financial statement.

________ exposure is the potential for an increase or decrease in the parent company's net worth and reported net income caused by a change in exchange rates since the last transaction.