Question 1

The source of translation exposure

Accepted Answer

A) is a mismatch of net assets and net liabilities denominated in the same currency. 
B) is a mismatch of net assets and net liabilities denominated in different currencies. 
C) is a mismatch of current assets and current liabilities denominated in different currencies. 
D) none of the above 
A) is a mismatch of net assets and net liabilities denominated in the same currency. 
B) is a mismatch of net assets and net liabilities denominated in different currencies. 
C) is a mismatch of current assets and current liabilities denominated in different currencies. 
D) none of the above

Question 2

A U.S.parent firm,as result of its business activities in Germany,has a net exposure of €1,000,000.The consolidated reports were prepared at the year end for the last two successive years.If the exchange rates on these reporting dates changed from $1.00 = €1.10 to $1.00 = €1.00,then the translation exposure report will indicate a "reporting currency imbalance" of

Accepted Answer

A) $90,910. 
B) $0. 
C) -$90,910. 
D) none of the above 
A) $90,910. 
B) $0. 
C) -$90,910. 
D) none of the above

Question 3

What does it mean to have redenominated an asset in terms of the dollar?

Accepted Answer

A) You have undertaken a hedging strategy that gives the asset a constant dollar value. 
B) Multiply the foreign currency value of the asset by the spot exchange rate. 
C) Undertaken accounting changes to eliminate translation exposure. 
D) None of the above 
A) You have undertaken a hedging strategy that gives the asset a constant dollar value. 
B) Multiply the foreign currency value of the asset by the spot exchange rate. 
C) Undertaken accounting changes to eliminate translation exposure. 
D) None of the above

Question 4

The extent to which the value of the firm would be affected by expected 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 5

Which of the following are true statements?

Accepted Answer

A) Since translation exposure does not have an immediate direct effect on operating cash flows, its control is relatively unimportant in comparison to transaction exposure, which involves potential real cash flow losses. 
B) Since it is generally not possible to eliminate both translation exposure and transaction exposure, it is more logical to effectively manage transaction exposure. 
C) Two ways to control translation risk are: a balance sheet hedge and a derivatives "hedge." 
D) All of the above are true statements 
A) Since translation exposure does not have an immediate direct effect on operating cash flows, its control is relatively unimportant in comparison to transaction exposure, which involves potential real cash flow losses. 
B) Since it is generally not possible to eliminate both translation exposure and transaction exposure, it is more logical to effectively manage transaction exposure. 
C) Two ways to control translation risk are: a balance sheet hedge and a derivatives "hedge." 
D) All of the above are true statements

Question 6

When exchange rates change

Accepted Answer

A) the value of a foreign subsidiary's foreign currency denominated assets and liabilities change to new numbers still denominated in the foreign currency. 
B) the value of a foreign subsidiary's foreign currency denominated assets and liabilities change when redenominated into the home currency. 
C) hedging should be done after the change. 
D) none of the above 
A) the value of a foreign subsidiary's foreign currency denominated assets and liabilities change to new numbers still denominated in the foreign currency. 
B) the value of a foreign subsidiary's foreign currency denominated assets and liabilities change when redenominated into the home currency. 
C) hedging should be done after the change. 
D) none of the above

Question 7

Fill out the 20 missing entries that translate the balance sheet and income statement for this French subsidiary using the Current/Noncurrent Method,the Monetary/Nonmonetary Method,the Temporal Method,and the Current Rate Method

Accepted Answer

The answer of Fill out the 20 missing entries that...

Question 8

The underlying principle of the current/noncurrent method is

Accepted Answer

A) assets and liabilities should be translated based on their maturity. 
B) monetary balance sheet accounts should be translated at the spot rate; nonmonetary accounts are translated at the historical rate in effect when the account was first recorded. 
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 stockholders' equity. 
A) assets and liabilities should be translated based on their maturity. 
B) monetary balance sheet accounts should be translated at the spot rate; nonmonetary accounts are translated at the historical rate in effect when the account was first recorded. 
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 stockholders' equity.

Question 9

The underlying principle of the current rate method is

Accepted Answer

A) assets and liabilities should be translated based on their maturity. 
B) monetary balance sheet accounts should be translated at the spot rate; nonmonetary accounts are translated at the historical rate in effect when the account was first recorded. 
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 stockholders' equity. 
A) assets and liabilities should be translated based on their maturity. 
B) monetary balance sheet accounts should be translated at the spot rate; nonmonetary accounts are translated at the historical rate in effect when the account was first recorded. 
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 stockholders' equity.

Question 10

A balance sheet hedge seeks to

Accepted Answer

A) eliminate any mismatch of net assets and net liabilities denominated in the same currency. 
B) transfer accounting exposure to transaction exposure. 
C) create cumulative translation adjustment. 
D) none of the above 
A) eliminate any mismatch of net assets and net liabilities denominated in the same currency. 
B) transfer accounting exposure to transaction exposure. 
C) create cumulative translation adjustment. 
D) none of the above

Question 11

Which of the above statements pertain to FASB 52?

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)

Question 12

Which of the following is true?

Accepted Answer

A) The competitive effect is defined as the impact that a currency depreciation may have on the operating cash flow in the foreign currency by altering the firm's competitive position in the marketplace. 
B) The conversion effect is defined as a given accounting cash value in a foreign currency that will be converted into a lower dollar amount after currency depreciation. 
C) The competitive effect is defined as a given operating cash flow in a foreign currency will be converted into a lower dollar amount after a currency depreciation. 
D) None of the above 
A) The competitive effect is defined as the impact that a currency depreciation may have on the operating cash flow in the foreign currency by altering the firm's competitive position in the marketplace. 
B) The conversion effect is defined as a given accounting cash value in a foreign currency that will be converted into a lower dollar amount after currency depreciation. 
C) The competitive effect is defined as a given operating cash flow in a foreign currency will be converted into a lower dollar amount after a currency depreciation. 
D) None of the above

Question 13

The underlying principle of the current/noncurrent 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

A derivatives hedge that seeks to eliminate translation exposure

Accepted Answer

A) eliminate any mismatch of the rate of change in net assets and the rate of change in net liabilities denominated in the same currency. 
B) really involves speculation about foreign exchange rate changes. 
C) by simultaneously going long and short in currency futures contracts. 
D) none of the above 
A) eliminate any mismatch of the rate of change in net assets and the rate of change in net liabilities denominated in the same currency. 
B) really involves speculation about foreign exchange rate changes. 
C) by simultaneously going long and short in currency futures contracts. 
D) none of the above

Question 15

Calculate the cumulative translation adjustment 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 rate 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 Calculate the cumulative translation adjustment for this...

Question 16

The impact of financing in determining the functional currency

Accepted Answer

A) financing does not impact the choice of functional currency due to the integrated nature of capital markets. 
B) if the financing of the foreign entity is primarily denominated in the foreign currency and the debt service obligations are normally handled by the foreign entity, the functional currency is the foreign currency. 
C) if the financing of the foreign entity is primarily from the parent, with debt service obligations normally handled by the parent, the functional currency is the home currency. 
D) both b) and c) 
A) financing does not impact the choice of functional currency due to the integrated nature of capital markets. 
B) if the financing of the foreign entity is primarily denominated in the foreign currency and the debt service obligations are normally handled by the foreign entity, the functional currency is the foreign currency. 
C) if the financing of the foreign entity is primarily from the parent, with debt service obligations normally handled by the parent, the functional currency is the home currency. 
D) both b) and c)

Question 17

The currency of the primary economic environment in which the entity operates is defined in FASB 52 as

Accepted Answer

A) the "reporting currency". 
B) the "functional currency". 
C) the "current" currency. 
D) none of the above 
A) the "reporting currency". 
B) the "functional currency". 
C) the "current" currency. 
D) none of the above

Question 18

In what year were U.S.MNCs mandated to implement FASB 52?

Accepted Answer

A) 1952 
B) 1962 
C) 1972 
D) 1982 
A) 1952 
B) 1962 
C) 1972 
D) 1982

Question 19

Consider a U.S.-based MNC with manufacturing activities in Japan.The result of a change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance sheet is:   Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "derivatives hedge" of

Accepted Answer

A) short position in ¥200,000,000 currency futures. 
B) long position in ¥200,000,000 currency futures. 
C) either a) or b) 
D) none of the above 
A) short position in ¥200,000,000 currency futures. 
B) long position in ¥200,000,000 currency futures. 
C) either a) or b) 
D) none of the above

Question 20

The "reporting 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 a) 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 a) and c)

The source of translation exposure

What does it mean to have redenominated an asset in terms of the dollar?

The extent to which the value of the firm would be affected by expected changes in the exchange rate is

Which of the following are true statements?

When exchange rates change

Fill out the 20 missing entries that translate the balance sheet and income statement for this French subsidiary using the Current/Noncurrent Method,the Monetary/Nonmonetary Method,the Temporal Method,and the Current Rate Method

The underlying principle of the current/noncurrent method is

The underlying principle of the current rate method is

A balance sheet hedge seeks to

Which of the above statements pertain to FASB 52?

Which of the following is true?

The underlying principle of the current/noncurrent method is

A derivatives hedge that seeks to eliminate translation exposure

The impact of financing in determining the functional currency

The currency of the primary economic environment in which the entity operates is defined in FASB 52 as

In what year were U.S.MNCs mandated to implement FASB 52?

The "reporting currency" is defined in FASB 52 as

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

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Exam 10: Management of Translation Exposure

The source of translation exposure

What does it mean to have redenominated an asset in terms of the dollar?

The extent to which the value of the firm would be affected by expected changes in the exchange rate is

Which of the following are true statements?

When exchange rates change

Fill out the 20 missing entries that translate the balance sheet and income statement for this French subsidiary using the Current/Noncurrent Method,the Monetary/Nonmonetary Method,the Temporal Method,and the Current Rate Method

The underlying principle of the current/noncurrent method is

The underlying principle of the current rate method is

A balance sheet hedge seeks to

Which of the above statements pertain to FASB 52?

Which of the following is true?

The underlying principle of the current/noncurrent method is

A derivatives hedge that seeks to eliminate translation exposure

The impact of financing in determining the functional currency

The currency of the primary economic environment in which the entity operates is defined in FASB 52 as

In what year were U.S.MNCs mandated to implement FASB 52?

The "reporting currency" is defined in FASB 52 as

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