Question 1

Which of the following statements is false?

Accepted Answer

A) Most income statement items under the current/noncurrent method are translated at the average exchange rate for the accounting period. 
B) Under the current/noncurrent method, revenue and expense items that are associated with current assets or liabilities, such as depreciation expense, are translated at the historical rate that applies to the applicable balance sheet item. 
C) Under the current/noncurrent method, revenue and expense items that are associated with noncurrent assets or liabilities, such as depreciation expense, are translated at the historical rate that applies to the applicable balance sheet item. 
D) Depreciation expense is translated at the historical rate that applies to the applicable depreciable asset items. 
A) Most income statement items under the current/noncurrent method are translated at the average exchange rate for the accounting period. 
B) Under the current/noncurrent method, revenue and expense items that are associated with current assets or liabilities, such as depreciation expense, are translated at the historical rate that applies to the applicable balance sheet item. 
C) Under the current/noncurrent method, revenue and expense items that are associated with noncurrent assets or liabilities, such as depreciation expense, are translated at the historical rate that applies to the applicable balance sheet item. 
D) Depreciation expense is translated at the historical rate that applies to the applicable depreciable asset items.

Question 2

Which of the following is a translation method where the gain or loss due to translation adjustment does not affect reported cash flows?

Accepted Answer

A) Current/noncurrent method 
B) Current rate method 
C) Current/future method 
D) Short/long term method 
A) Current/noncurrent method 
B) Current rate method 
C) Current/future method 
D) Short/long term method

Question 3

The generally accepted method for consolidating the financial reports of an MNC from the 1930s to 1975 was

Accepted Answer

A) current/noncurrent method. 
B) monetary/nonmonetary method. 
C) temporal method. 
D) current rate method. 
A) current/noncurrent method. 
B) monetary/nonmonetary method. 
C) temporal method. 
D) current rate method.

Question 4

The authoritative body in the United States that specifies accounting policy for U.S.business firms and certified public accounting firms.

Accepted Answer

A) The Federal Accounting Standards Board (FAS
B) . 
B) The International Accounting Standards Board (IAS
B) . 
C) The Financial Accounting Standards Board (FAS
B) . 
D) The Securities and Exchange Commission (SE
C)  
A) The Federal Accounting Standards Board (FAS
B) . 
B) The International Accounting Standards Board (IAS
B) . 
C) The Financial Accounting Standards Board (FAS
B) . 
D) The Securities and Exchange Commission (SE
C)

Question 5

The difference between accounting exposure and translation exposure

Accepted Answer

A) translation is about going from one language to another, accounting is just about the numbers. 
B) accounting exposure and translation exposure are the same thing. 
C) hedging one always involves increasing the other. 
D) hedging one might involve increasing the other. 
A) translation is about going from one language to another, accounting is just about the numbers. 
B) accounting exposure and translation exposure are the same thing. 
C) hedging one always involves increasing the other. 
D) hedging one might involve increasing the other.

Question 6

The "functional currency" is defined in FASB 52 as

Accepted Answer

A) the currency of the primary economic environment in which the entity operates. 
B) the currency in which the MNC prepares its consolidated financial statements. 
C) a currency that is not the parent firm's home country currency. 
D) both b) and c) 
A) the currency of the primary economic environment in which the entity operates. 
B) the currency in which the MNC prepares its consolidated financial statements. 
C) a currency that is not the parent firm's home country currency. 
D) both b) and c)

Question 7

Under which method does the gain or loss due to translation adjustment not affect reported cash flows,as it does with the other three translation methods?

Accepted Answer

A) Current/noncurrent method 
B) Monetary/nonmonetary method 
C) Temporal method 
D) Current rate method 
A) Current/noncurrent method 
B) Monetary/nonmonetary method 
C) Temporal method 
D) Current rate method

Question 8

A highly inflationary economy is defined in FASB 52 as

Accepted Answer

A) one that has cumulative inflation of approximately 100 percent or more over a 3-year period. 
B) one that has current inflation of approximately 40 percent per year. 
C) one that has going-forward expected inflation of approximately 40 percent per year. 
D) none of the above 
A) one that has cumulative inflation of approximately 100 percent or more over a 3-year period. 
B) one that has current inflation of approximately 40 percent per year. 
C) one that has going-forward expected inflation of approximately 40 percent per year. 
D) none of the above

Question 9

Find the foreign currency gain or loss for this U.S.MNC translating the balance sheet and income statement of a French subsidiary,which keeps its books in euro,but that is translated into U.S.dollars using the current/noncurrent method,the reporting currency of the U.S.MNC.
The subsidiary is at the end of its first year of operation.
The historical exchange rate is $1.60/€1.00 and the most recent exchange rate is $1.50/€

Accepted Answer

The answer of Find the foreign currency gain or loss...

Question 10

In comparison to the current/noncurrent method,the monetary/nonmonetary method

Accepted Answer

A) differs substantially with regard to the treatment of inventory. 
B) classifies accounts on the basis of similarity of attributes rather than the similarity of maturities. 
C) both a) and b) 
D) none of the above 
A) differs substantially with regard to the treatment of inventory. 
B) classifies accounts on the basis of similarity of attributes rather than the similarity of maturities. 
C) both a) and b) 
D) none of the above

Question 11

Using the temporal method,monetary accounts such as cash

Accepted Answer

A) are not translated. 
B) are translated at the average exchange rate prevailing over the reporting period. 
C) are translated at the current forward exchange rate. 
D) are translated at the current spot exchange rate. 
A) are not translated. 
B) are translated at the average exchange rate prevailing over the reporting period. 
C) are translated at the current forward exchange rate. 
D) are translated at the current spot exchange rate.

Question 12

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

Accepted Answer

A) transaction exposure. 
B) translation exposure. 
C) economic exposure. 
D) none of the above 
A) transaction exposure. 
B) translation exposure. 
C) economic exposure. 
D) none of the above

Question 13

The underlying principle of the temporal method is

Accepted Answer

A) assets and liabilities should be translated based on their maturity. 
B) monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation changes each time the exchange rate changes. 
C) monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates. 
D) all balance sheet accounts are translated at the current exchange rate, except for stockholders' equity.A "plug" equity account named cumulative translation adjustment (CT
A)  is used to make the balance sheet balance, since translation gains or losses do not go through the income statement according to this method. 
A) assets and liabilities should be translated based on their maturity. 
B) monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation changes each time the exchange rate changes. 
C) monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates. 
D) all balance sheet accounts are translated at the current exchange rate, except for stockholders' equity.A "plug" equity account named cumulative translation adjustment (CT
A)  is used to make the balance sheet balance, since translation gains or losses do not go through the income statement according to this method.

Question 14

The management of translation exposure is best described as

Accepted Answer

A) selecting a mechanical means for handling the consolidation process for MNCs that logically deals with exchange rate changes. 
B) selecting a mechanical means for handling the consolidation process for MNCs that makes this quarter's accounting numbers as attractive as possible. 
C) selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as LIFO on the income statement and FIFO on the balance sheet. 
D) selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as FIFO on the income statement and LIFO on the balance sheet. 
A) selecting a mechanical means for handling the consolidation process for MNCs that logically deals with exchange rate changes. 
B) selecting a mechanical means for handling the consolidation process for MNCs that makes this quarter's accounting numbers as attractive as possible. 
C) selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as LIFO on the income statement and FIFO on the balance sheet. 
D) selecting a mechanical means for handling the consolidation process for MNCs that treats inventory valuation as FIFO on the income statement and LIFO on the balance sheet.

Question 15

With regard to translation exposure versus operating exposure

Accepted Answer

A) upper management should be more concerned with translation exposure. 
B) any discussion really involves speculation about foreign exchange rate changes. 
C) upper management should be more concerned with operating exposure. 
D) none of the above 
A) upper management should be more concerned with translation exposure. 
B) any discussion really involves speculation about foreign exchange rate changes. 
C) upper management should be more concerned with operating exposure. 
D) none of the above

Question 16

FASB 52 requires

Accepted Answer

A) The current rate method of translation in some circumstances and the temporal method in others. 
B) The current rate method of translation in some circumstances and the noncurrent method in others. 
C) The monetary rate method of translation in some circumstances and the temporal method in others. 
D) The current rate method of translation in some circumstances and the monetary method in others. 
A) The current rate method of translation in some circumstances and the temporal method in others. 
B) The current rate method of translation in some circumstances and the noncurrent method in others. 
C) The monetary rate method of translation in some circumstances and the temporal method in others. 
D) The current rate method of translation in some circumstances and the monetary method in others.

Question 17

The underlying principle of the monetary/nonmonetary method is

Accepted Answer

A) assets and liabilities should be translated based on their maturity. 
B) monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation changes each time the exchange rate changes. 
C) monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates. 
D) all balance sheet accounts are translated at the current exchange rate, except for stockholders' equity.A "plug" equity account named cumulative translation adjustment (CT
A)  is used to make the balance sheet balance, since translation gains or losses do not go through the income statement according to this method. 
A) assets and liabilities should be translated based on their maturity. 
B) monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation changes each time the exchange rate changes. 
C) monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates. 
D) all balance sheet accounts are translated at the current exchange rate, except for stockholders' equity.A "plug" equity account named cumulative translation adjustment (CT
A)  is used to make the balance sheet balance, since translation gains or losses do not go through the income statement according to this method.

Question 18

Under the monetary/nonmonetary method,revenue and expense items associated with nonmonetary accounts,such as cost of goods sold and depreciation,are translated at the historical rate associated with the balance sheet account.

Accepted Answer

A) True 
 B)False

Question 19

Generally speaking,

Accepted Answer

A) it is not possible to hedge both translation exposure and transaction exposure simultaneously. 
B) if a firm can hedge translation exposure then transaction exposure will be simultaneously hedged. 
C) if a firm can hedge transaction exposure then translation exposure will be simultaneously hedged. 
D) none of the above 
A) it is not possible to hedge both translation exposure and transaction exposure simultaneously. 
B) if a firm can hedge translation exposure then transaction exposure will be simultaneously hedged. 
C) if a firm can hedge transaction exposure then translation exposure will be simultaneously hedged. 
D) none of the above

Question 20

Which of the above statements pertain to FASB 8?

Accepted Answer

A) (i) 
B) (i) and (ii) 
C) (iii) and (iv) 
D) (i), (ii), and (iii) 
A) (i) 
B) (i) and (ii) 
C) (iii) and (iv) 
D) (i), (ii), and (iii)

Which of the following statements is false?

Which of the following is a translation method where the gain or loss due to translation adjustment does not affect reported cash flows?

The generally accepted method for consolidating the financial reports of an MNC from the 1930s to 1975 was

The authoritative body in the United States that specifies accounting policy for U.S.business firms and certified public accounting firms.

The difference between accounting exposure and translation exposure

The "functional currency" is defined in FASB 52 as

Under which method does the gain or loss due to translation adjustment not affect reported cash flows,as it does with the other three translation methods?

A highly inflationary economy is defined in FASB 52 as

In comparison to the current/noncurrent method,the monetary/nonmonetary method

Using the temporal method,monetary accounts such as cash

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

The underlying principle of the temporal method is

The management of translation exposure is best described as

With regard to translation exposure versus operating exposure

FASB 52 requires

The underlying principle of the monetary/nonmonetary method is

Under the monetary/nonmonetary method,revenue and expense items associated with nonmonetary accounts,such as cost of goods sold and depreciation,are translated at the historical rate associated with the balance sheet account.

Generally speaking,

Which of the above statements pertain to FASB 8?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters

Exam 10: Management of Translation Exposure

Which of the following statements is false?

Which of the following is a translation method where the gain or loss due to translation adjustment does not affect reported cash flows?

The generally accepted method for consolidating the financial reports of an MNC from the 1930s to 1975 was

The authoritative body in the United States that specifies accounting policy for U.S.business firms and certified public accounting firms.

The difference between accounting exposure and translation exposure

The "functional currency" is defined in FASB 52 as

Under which method does the gain or loss due to translation adjustment not affect reported cash flows,as it does with the other three translation methods?

A highly inflationary economy is defined in FASB 52 as

In comparison to the current/noncurrent method,the monetary/nonmonetary method

Using the temporal method,monetary accounts such as cash

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

The underlying principle of the temporal method is

The management of translation exposure is best described as

With regard to translation exposure versus operating exposure

FASB 52 requires

The underlying principle of the monetary/nonmonetary method is

Under the monetary/nonmonetary method,revenue and expense items associated with nonmonetary accounts,such as cost of goods sold and depreciation,are translated at the historical rate associated with the balance sheet account.

Generally speaking,

Which of the above statements pertain to FASB 8?

Globalization and the Multinational Firm

International Monetary System

Balance of Payments

Corporate Governance Around the World

The Market for Foreign Exchange

International Parity Relationships and Forecasting Foreign Exchange Rates

Futures and Options on Foreign Exchange

Management of Transaction Exposure

Management of Economic Exposure

International Banking and Money Market

International Bond Market

International Equity Markets

Interest Rate and Currency Swaps

International Portfolio Investment

Foreign Direct Investment and Cross-Border Acquisitions

International Capital Structure and the Cost of Capital

International Capital Budgeting

Multinational Cash Management

International Trade Finance

International Tax Environment and Transfer Pricing

Filters