Question 1

If a foreign entity is only a shell company for carrying accounts that could be carried on the parent's books,

Accepted Answer

A) the functional currency would generally be the parent's currency. 
B) the functional currency would generally be the local currency. 
C) there is no reason to hedge transaction exposure. 
D) none of the above 
A) the functional currency would generally be the parent's currency. 
B) the functional currency would generally be the local currency. 
C) there is no reason to hedge transaction exposure. 
D) none of the above

Question 2

Translation exposure measures

Accepted Answer

A) the effect that an anticipated change in exchange rates will have on the consolidated financial reports of an MNC. 
B) economic exposure. 
C) the change in the value of a foreign subsidiaries assets and liabilities denominated in a foreign currency, as a result of exchange rate change fluctuations, when viewed from the perspective of the parent firm. 
D) all of the above 
A) the effect that an anticipated change in exchange rates will have on the consolidated financial reports of an MNC. 
B) economic exposure. 
C) the change in the value of a foreign subsidiaries assets and liabilities denominated in a foreign currency, as a result of exchange rate change fluctuations, when viewed from the perspective of the parent firm. 
D) all of the above

Question 3

The recognized methods for consolidating the financial reports of an MNC are

Accepted Answer

A) short/long term method, current/future method, flexible/inflexible method, and economic/noneconomic method. 
B) current/noncurrent method, monetary/nonmonetary method, short/long term method, and current/future method. 
C) current/noncurrent method, monetary/nonmonetary method, temporal method, and current rate method. 
D) temporal method, current rate method, flexible/inflexible method, and economic/noneconomic method. 
A) short/long term method, current/future method, flexible/inflexible method, and economic/noneconomic method. 
B) current/noncurrent method, monetary/nonmonetary method, short/long term method, and current/future method. 
C) current/noncurrent method, monetary/nonmonetary method, temporal method, and current rate method. 
D) temporal method, current rate method, flexible/inflexible method, and economic/noneconomic method.

Question 4

FASB 8 is essentially the

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 5

Under the current rate method,

Accepted Answer

A) income statement items are to be translated at the exchange rate at the dates the items are recognized. 
B) since a) is generally impractical, an appropriately weighted average exchange rate for the period may be used for translation. 
C) all balance sheet accounts are translated at the current exchange rate, except stockholders' equity. 
D) all of the above 
A) income statement items are to be translated at the exchange rate at the dates the items are recognized. 
B) since a) is generally impractical, an appropriately weighted average exchange rate for the period may be used for translation. 
C) all balance sheet accounts are translated at the current exchange rate, except stockholders' equity. 
D) all of the above

Question 6

According to the monetary/nonmonetary method,monetary balance sheet accounts include

Accepted Answer

A) for example, cash, marketable securities, accounts receivable, notes payable, accounts payable of a foreign subsidiary. 
B) for example stockholders' equity and long term debt. 
C) for example inventory paid for in cash, but not working capital. 
D) COGs, sales, net income. 
A) for example, cash, marketable securities, accounts receivable, notes payable, accounts payable of a foreign subsidiary. 
B) for example stockholders' equity and long term debt. 
C) for example inventory paid for in cash, but not working capital. 
D) COGs, sales, net income.

Question 7

Salient economic factors for determining the functional currency include

Accepted Answer

A) cash flow indicators. 
B) sales price indicators. 
C) sales market indicators. 
D) all of the above 
A) cash flow indicators. 
B) sales price indicators. 
C) sales market indicators. 
D) all of the above

Question 8

XYZ Corporation,a U.S.parent firm,has a wholly owned sales affiliate,ABC Ltd.,in the United Kingdom.The affiliate was established to service to the local market. Assume that:
1)the functional currency of ABC is the pound
2)the reporting currency is the dollar
3)the initial exchange rate $1.00 = £ 0.67
ABC's nonconsolidated balance sheets and the footnotes to the financial statements indicate that ABC owes the parent firm £200,000.Assume that,XYZ had made an investment of $500,000 in the affiliate.Under FASB 52,the intercompany debt and investment will appear on the consolidated balance sheet as

Accepted Answer

A) £200,000. 
B) $201,493. 
C) $298,507. 
D) none of the above 
A) £200,000. 
B) $201,493. 
C) $298,507. 
D) none of the above

Question 9

In highly inflationary economies,FASB 52 requires that the foreign entities' financial statement be remeasured from the local currency "as if the functional currency were the reporting currency".The purpose of this requirement is

Accepted Answer

A) to prevent large important balance sheet accounts, carried at historical values, from having insignificant values once translated into the reporting currency at the current rate. 
B) to prevent games playing in the accounting books. 
C) to prevent having to restate the books at a later date. 
D) none of the above 
A) to prevent large important balance sheet accounts, carried at historical values, from having insignificant values once translated into the reporting currency at the current rate. 
B) to prevent games playing in the accounting books. 
C) to prevent having to restate the books at a later date. 
D) none of the above

Question 10

The simplest of all translation methods to apply is

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 11

The extent to which the value of the firm would be affected by 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 12

The underlying principle of the current/noncurrent method is that assets and liabilities should be translated based on their maturity.

Accepted Answer

A) Current assets and liabilities are converted at the current exchange rate in effect when the cash flow associated with the asset or liability actually occurred.Non-current assets and liabilities are translated at the historical exchange rate that prevailed when the asset was recognized. 
B) Current assets and liabilities, which by definition have a maturity of one year or less, are converted at the current exchange rate.Non-current assets and liabilities are translated at the historical exchange rate. 
C) All assets and liabilities are converted at the current exchange rate. 
D) None of the above 
A) Current assets and liabilities are converted at the current exchange rate in effect when the cash flow associated with the asset or liability actually occurred.Non-current assets and liabilities are translated at the historical exchange rate that prevailed when the asset was recognized. 
B) Current assets and liabilities, which by definition have a maturity of one year or less, are converted at the current exchange rate.Non-current assets and liabilities are translated at the historical exchange rate. 
C) All assets and liabilities are converted at the current exchange rate. 
D) None of the above

Question 13

The underlying principle of the monetary/nonmonetary 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 14

In implementing FASB 52,

Accepted Answer

A) the functional currency of the foreign entity must be translated into the reporting currency in which the consolidated statements are reported. 
B) the local currency of a foreign entity may not always be its functional currency.If it is not, the temporal method of translation is used to remeasure the foreign entity's books into the functional currency. 
C) the current rate method is used to translate from the functional currency to the reporting currency. 
D) in some cases, a foreign entity's functional currency may be the same as the reporting currency, in which case translation is not necessary. 
E) All of the above are true 
A) the functional currency of the foreign entity must be translated into the reporting currency in which the consolidated statements are reported. 
B) the local currency of a foreign entity may not always be its functional currency.If it is not, the temporal method of translation is used to remeasure the foreign entity's books into the functional currency. 
C) the current rate method is used to translate from the functional currency to the reporting currency. 
D) in some cases, a foreign entity's functional currency may be the same as the reporting currency, in which case translation is not necessary. 
E) All of the above are true

Question 15

The actual translation process prescribed by FASB 52 is

Accepted Answer

A) a two-stage process. 
B) a twelve step program. 
C) a five-step process. 
D) none of the above. 
A) a two-stage process. 
B) a twelve step program. 
C) a five-step process. 
D) none of the above.

Question 16

Since fixed assets and inventory are usually carried at historical costs,

Accepted Answer

A) the temporal method and the monetary/nonmonetary methods will typically provide the same translation. 
B) the current rate method and the monetary/nonmonetary methods will typically provide the same translation. 
C) the temporal method and the current/noncurrent methods will typically provide the same translation. 
D) none of the above 
A) the temporal method and the monetary/nonmonetary methods will typically provide the same translation. 
B) the current rate method and the monetary/nonmonetary methods will typically provide the same translation. 
C) the temporal method and the current/noncurrent methods will typically provide the same translation. 
D) none of the above

Question 17

When determining the functional currency,

Accepted Answer

A) if the sales prices for the foreign entity's products are generally not responsive on a short-term basis to exchange rate changes, but are determined more by local competition and government regulation, the local currency should be the functional currency. 
B) if there is an active local market for the foreign entity's products the local currency should be the functional currency. 
C) if factor of production costs for the foreign entity are primarily, and on a continuing basis, costs for components obtained from the parent's country the functional currency should be the home currency. 
D) all of the above 
A) if the sales prices for the foreign entity's products are generally not responsive on a short-term basis to exchange rate changes, but are determined more by local competition and government regulation, the local currency should be the functional currency. 
B) if there is an active local market for the foreign entity's products the local currency should be the functional currency. 
C) if factor of production costs for the foreign entity are primarily, and on a continuing basis, costs for components obtained from the parent's country the functional currency should be the home currency. 
D) all of the above

Question 18

Under the current/noncurrent method

Accepted Answer

A) a foreign subsidiary with current assets in excess of current liabilities will cause a translation gain (loss) if the local currency appreciates (depreciates). 
B) a foreign subsidiary with current assets in excess of current liabilities will cause a translation loss (gain) if the local currency appreciates (depreciates). 
C) a foreign subsidiary with current assets in excess of current liabilities will cause a translation gain (loss) if the local currency depreciates (appreciates). 
D) both b) and c) 
A) a foreign subsidiary with current assets in excess of current liabilities will cause a translation gain (loss) if the local currency appreciates (depreciates). 
B) a foreign subsidiary with current assets in excess of current liabilities will cause a translation loss (gain) if the local currency appreciates (depreciates). 
C) a foreign subsidiary with current assets in excess of current liabilities will cause a translation gain (loss) if the local currency depreciates (appreciates). 
D) both b) and c)

Question 19

Under which accounting method are most income statement accounts translated at the average exchange rate for the period?

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 20

When exchange rates change,the value of a foreign subsidiary's assets and liabilities denominated in a foreign currency change

Accepted Answer

A) when they are viewed from the perspective of the subsidiary firm. 
B) when they are viewed from the perspective of the parent firm. 
C) but this is only of material concern if the parent firm is liquidating the subsidiary in a bankruptcy and is forced to realize the value of the assets and liabilities at the current exchange rate. 
D) none of the above 
A) when they are viewed from the perspective of the subsidiary firm. 
B) when they are viewed from the perspective of the parent firm. 
C) but this is only of material concern if the parent firm is liquidating the subsidiary in a bankruptcy and is forced to realize the value of the assets and liabilities at the current exchange rate. 
D) none of the above

If a foreign entity is only a shell company for carrying accounts that could be carried on the parent's books,

Translation exposure measures

The recognized methods for consolidating the financial reports of an MNC are

FASB 8 is essentially the

Under the current rate method,

According to the monetary/nonmonetary method,monetary balance sheet accounts include

Salient economic factors for determining the functional currency include

In highly inflationary economies,FASB 52 requires that the foreign entities' financial statement be remeasured from the local currency "as if the functional currency were the reporting currency".The purpose of this requirement is

The simplest of all translation methods to apply is

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

The underlying principle of the current/noncurrent method is that assets and liabilities should be translated based on their maturity.

The underlying principle of the monetary/nonmonetary method is

In implementing FASB 52,

The actual translation process prescribed by FASB 52 is

Since fixed assets and inventory are usually carried at historical costs,

When determining the functional currency,

Under the current/noncurrent method

Under which accounting method are most income statement accounts translated at the average exchange rate for the period?

When exchange rates change,the value of a foreign subsidiary's assets and liabilities denominated in a foreign currency change

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

If a foreign entity is only a shell company for carrying accounts that could be carried on the parent's books,

Translation exposure measures

The recognized methods for consolidating the financial reports of an MNC are

FASB 8 is essentially the

Under the current rate method,

According to the monetary/nonmonetary method,monetary balance sheet accounts include

Salient economic factors for determining the functional currency include

In highly inflationary economies,FASB 52 requires that the foreign entities' financial statement be remeasured from the local currency "as if the functional currency were the reporting currency".The purpose of this requirement is

The simplest of all translation methods to apply is

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

The underlying principle of the current/noncurrent method is that assets and liabilities should be translated based on their maturity.

The underlying principle of the monetary/nonmonetary method is

In implementing FASB 52,

The actual translation process prescribed by FASB 52 is

Since fixed assets and inventory are usually carried at historical costs,

When determining the functional currency,

Under the current/noncurrent method

Under which accounting method are most income statement accounts translated at the average exchange rate for the period?

When exchange rates change,the value of a foreign subsidiary's assets and liabilities denominated in a foreign currency change

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