Question 1

The main technique to minimize translation exposure is called a/an ________ hedge.

Accepted Answer

A)  balance sheet 
B)  income statement 
C)  forward 
D)  translation 
A)  balance sheet 
B)  income statement 
C)  forward 
D)  translation

Question 2

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.

Accepted Answer

A) True 
 B)False

Question 3

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

Accepted Answer

A)  gain of $25,000. 
B)  loss of $25,000. 
C)  gain of $525,000. 
D)  loss of euro 525,000. 
A)  gain of $25,000. 
B)  loss of $25,000. 
C)  gain of $525,000. 
D)  loss of euro 525,000.

Question 4

A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities

Accepted Answer

A)  have a 2:1 ratio of assets to liabilities. 
B)  have a 2:1 ratio of liabilities to assets. 
C)  have a 2:1 ratio of liabilities to equity. 
D)  be equal. 
A)  have a 2:1 ratio of assets to liabilities. 
B)  have a 2:1 ratio of liabilities to assets. 
C)  have a 2:1 ratio of liabilities to equity. 
D)  be equal.

Question 5

Translation exposure measures

Accepted Answer

A)  changes in the value of outstanding financial obligations incurred prior to a change in exchange rates. 
B)  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 consolidation of international operations. 
C)  an unexpected change in exchange rates impact on short run expected cash flows. 
D)  none of the above. 
A)  changes in the value of outstanding financial obligations incurred prior to a change in exchange rates. 
B)  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 consolidation of international operations. 
C)  an unexpected change in exchange rates impact on short run expected cash flows. 
D)  none of the above.

Question 6

Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.

Accepted Answer

A balance sheet hedge attempts to equali

Question 7

Most managers would prefer to be protected against transaction rather than translation losses because

Accepted Answer

A)  transaction loses are realized cash loses. 
B)  Wall-street analysts do not account for CTA. 
C)  potential transaction loses are bigger than the translational loses. 
D)  translation losses are not recognized in the consolidated financial statements. 
A)  transaction loses are realized cash loses. 
B)  Wall-street analysts do not account for CTA. 
C)  potential transaction loses are bigger than the translational loses. 
D)  translation losses are not recognized in the consolidated financial statements.

Question 8

A balance sheet hedge is the main technique for managing

Accepted Answer

A)  transaction. 
B)  operating. 
C)  translation. 
D)  money market. 
A)  transaction. 
B)  operating. 
C)  translation. 
D)  money market.

Question 9

Using the table below, estimate the net exposure for Souris River Manufacturing of it's wholly-owned Canadian subsidiary. Souris River Manufacturing (Canada)
Balance Sheet December 31 200X

Accepted Answer

A)  C$40,000 
B)  C$160,000 
C)  C$166,000 
D)  C$200,000 
A)  C$40,000 
B)  C$160,000 
C)  C$166,000 
D)  C$200,000

Question 10

The two methods for the translation of foreign subsidiary financial statements are the current rate and temporal methods. Briefly, describe how each of these methods translates the foreign subsidiary financial statements into the parent company's consolidated statements. Identify when each technique should be used and the major advantage(s) of each.

Accepted Answer

The current rate method translates almos

Question 11

According to your authors, the main purpose of translation is

Accepted Answer

A)  to prepare consolidated financial statements. 
B)  to help management assess the performance of foreign subsidiaries. 
C)  to act as an interpreter for managers without foreign language skills. 
D)  none of the above. 
A)  to prepare consolidated financial statements. 
B)  to help management assess the performance of foreign subsidiaries. 
C)  to act as an interpreter for managers without foreign language skills. 
D)  none of the above.

Question 12

The current rate method is the most prevalent method today for the translation of financial statements.

Accepted Answer

A) True 
 B)False

Question 13

If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then

Accepted Answer

A)  the net exposed position is called monetary balance. 
B)  the change of value of liabilities and assets due to a change in exchange rates will be of equal but opposite direction. 
C)  both A and B are true. 
D)  none of the above. 
A)  the net exposed position is called monetary balance. 
B)  the change of value of liabilities and assets due to a change in exchange rates will be of equal but opposite direction. 
C)  both A and B are true. 
D)  none of the above.

Question 14

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.

Accepted Answer

A) True 
 B)False

Question 15

________ gains and losses are "realized" whereas ________ gains and losses are only "paper."

Accepted Answer

A)  Translation; transaction 
B)  Transaction; translation 
C)  Translation; operating 
D)  None of the above 
A)  Translation; transaction 
B)  Transaction; translation 
C)  Translation; operating 
D)  None of the above

Question 16

Gains or losses caused by translation adjustments when using the current rate method are reported separately on the

Accepted Answer

A)  consolidated statement of cash flow. 
B)  consolidated income statement. 
C)  consolidated balance sheet. 
D)  none of the above 
A)  consolidated statement of cash flow. 
B)  consolidated income statement. 
C)  consolidated balance sheet. 
D)  none of the above

Question 17

Cumulative Translation Adjustment (CTA) is

Accepted Answer

A)  a separate line on the consolidated income statement stating the FX effect on the company's earnings. 
B)  a separate equity reserve account stating translation gains or losses over time. 
C)  a separate margin added to the sale price once the subsidiary is liquidated. 
D)  a separate account on the subsidiary cash flow statement that needs to be adjusted. 
A)  a separate line on the consolidated income statement stating the FX effect on the company's earnings. 
B)  a separate equity reserve account stating translation gains or losses over time. 
C)  a separate margin added to the sale price once the subsidiary is liquidated. 
D)  a separate account on the subsidiary cash flow statement that needs to be adjusted.

The main technique to minimize translation exposure is called a/an ________ hedge.

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.

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

A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities

Translation exposure measures

Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.

Most managers would prefer to be protected against transaction rather than translation losses because

A balance sheet hedge is the main technique for managing

Using the table below, estimate the net exposure for Souris River Manufacturing of it's wholly-owned Canadian subsidiary. Souris River Manufacturing (Canada) Balance Sheet December 31 200X

According to your authors, the main purpose of translation is

The current rate method is the most prevalent method today for the translation of financial statements.

If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then

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.

gains and losses are "realized" whereas gains and losses are only "paper."

Gains or losses caused by translation adjustments when using the current rate method are reported separately on the

Cumulative Translation Adjustment (CTA) is

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 10: Translation Exposure

The main technique to minimize translation exposure is called a/an ________ hedge.

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.

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

A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities

Translation exposure measures

Describe a balance sheet hedge and give at least two examples of when such a hedge could be justified.

Most managers would prefer to be protected against transaction rather than translation losses because

A balance sheet hedge is the main technique for managing

Using the table below, estimate the net exposure for Souris River Manufacturing of it's wholly-owned Canadian subsidiary. Souris River Manufacturing (Canada) Balance Sheet December 31 200X

According to your authors, the main purpose of translation is

The current rate method is the most prevalent method today for the translation of financial statements.

If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then

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.

________ gains and losses are "realized" whereas ________ gains and losses are only "paper."

Gains or losses caused by translation adjustments when using the current rate method are reported separately on the

Cumulative Translation Adjustment (CTA) is

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

The Foreign Exchange Market

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

gains and losses are "realized" whereas gains and losses are only "paper."