Question 1

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 options 
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 options C

Question 2

Which of the following is true?

Accepted Answer

A) Some items that are a source of transaction exposure are also a source of translation exposure. 
B) Some items that are a source of transaction exposure are not also a source of translation exposure. 
C) Some items that are a source of transaction exposure are also a source of translation exposure,but some items that are a source of transaction exposure are not also a source of translation exposure. 
D) none of the options 
A) Some items that are a source of transaction exposure are also a source of translation exposure. 
B) Some items that are a source of transaction exposure are not also a source of translation exposure. 
C) Some items that are a source of transaction exposure are also a source of translation exposure,but some items that are a source of transaction exposure are not also a source of translation exposure. 
D) none of the options C

Question 3

Under FASB 52,when a net translation exposure exists,

Accepted Answer

A) a derivatives hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change. 
B) a money market hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change. 
C) a cumulative translation adjustment account is necessary to bring balance to the consolidated balance sheet after an exchange rate change. 
D) none of the options 
A) a derivatives hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change. 
B) a money market hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change. 
C) a cumulative translation adjustment account is necessary to bring balance to the consolidated balance sheet after an exchange rate change. 
D) none of the options C

Question 4

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 stockholder 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 stockholder equity.

Question 5

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 6

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) the currency of the primary economic environment in which the entity operates,as well as a currency that is not the parent firm's home country currency. 
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) the currency of the primary economic environment in which the entity operates,as well as a currency that is not the parent firm's home country currency.

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

Question 8

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 options 
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 options

Question 9

The current/noncurrent method of foreign currency translation was generally accepted in the United States from the 1930s until 1975,when

Accepted Answer

A) FASB 2 became effective. 
B) FASB 4 became effective. 
C) FASB 6 became effective. 
D) FASB 8 became effective. 
A) FASB 2 became effective. 
B) FASB 4 became effective. 
C) FASB 6 became effective. 
D) FASB 8 became effective.

Question 10

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 options 
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 options

Question 11

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 12

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

Question 13

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 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 options 
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 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 options

Question 14

Translation exposure,also frequently called accounting exposure,refers to the effect that an unanticipated change in exchange rates will have on the

Accepted Answer

A) choice of accounting methodology. 
B) consolidated financial reports of a MNC. 
C) firms competitive position. 
D) cash flows realized from foreign operations. 
A) choice of accounting methodology. 
B) consolidated financial reports of a MNC. 
C) firms competitive position. 
D) cash flows realized from foreign operations.

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/€.
 \(\begin{array}{lccccc}
&\text { Local Currency }&\text { Culyent Rate}\
\text { Balance Sheet }\
\text { Cash } & € 2,100 &  \$ 3,150 \
\text { Inventory (Current Value }=€ 1,800) & € 1,500 &  \$  2,250 \
\text { Net fixed assets } & € 3,000 & \$ 4,500 \
\text { Total Assets } & €6,600 & \$ 9,900\
\text { Current liabilities } & € 1,200& \$ 1,800 \
\text { Long-term debt } & €1,800& \$  2,700\
\text { Common stock } & €2,700 & \$ 4,320 \
\text { Retained earnings } & € 900 & \$ 1,394 \
\text { CTA } & & & & \
\text { Total L\&E } & €6,600 & \$ 9,900\
\text { Income Statement }\
\text { Sales Revenue } & €10,000 & \$ 15,484 \
\text { COGS } & € 7,500& \$11,613 \
\text { Depreciation } & €1,000& \$ 1,548 \
\text { NOI } & € 1,500&\$ 2,323 \
\operatorname{Tax}(40 \%) & €  600 & \$929\
\text { Profit after tax }&€900 & \$ 1,394\
\text { Foreign Exchange gain (loss) }\
\text { Net income } & € 900&\$1394 \
\text { Dividends } & €0 & \$0\
\text { Addition to Retained Earnings }& € 900 & € 1394
\end{array}\)

Accepted Answer

Correct answer is -$

Question 16

Translation exposure,

Accepted Answer

A) is not entity specific,rather it is currency specific. 
B) is not currency specific,rather it is entity specific. 
C) involves restatement from Italian to French. 
D) none of the options 
A) is not entity specific,rather it is currency specific. 
B) is not currency specific,rather it is entity specific. 
C) involves restatement from Italian to French. 
D) none of the options

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

With regard to foreign currency translation methods used by foreign MNCs,

Accepted Answer

A) foreign currency translation methods are generally only used by U.S.based MNCs since foreign firms have a built-in hedge by being foreign. 
B) are generally the same methods used by U.S.-based firms. 
C) are exactly the same methods used by U.S.-based firms since GAAP is GAAP. 
D) none of the options 
A) foreign currency translation methods are generally only used by U.S.based MNCs since foreign firms have a built-in hedge by being foreign. 
B) are generally the same methods used by U.S.-based firms. 
C) are exactly the same methods used by U.S.-based firms since GAAP is GAAP. 
D) none of the options

Question 19

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 stockholder 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 stockholder equity.

Question 20

Financial Accounting Standards Board (FASB)Statements 8 and 52 relate to the translation methods.The following outlines the objectives and descriptions of the two statements. 
(i)Measure in dollars an enterprise's assets,liabilities,revenues,or expenses that are denominated in a foreign currency according to generally accepted accounting principles
(ii)Is essentially the temporal method of translation (with some subtle differences)
(iii)Provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity
(iv)Reflect in consolidated statements the financial results and relationships of the individual consolidated entities as measured in their functional currencies in conformity with U.S.generally accepted accounting principles
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)

Translation exposure measures

Which of the following is true?

Under FASB 52,when a net translation exposure exists,

The underlying principle of the current/noncurrent method is

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

The "reporting currency" is defined in FASB 52 as

Salient economic factors for determining the functional currency include

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

The current/noncurrent method of foreign currency translation was generally accepted in the United States from the 1930s until 1975,when

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

The underlying principle of the current/noncurrent method is

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

Which of the following is true?

Translation exposure,also frequently called accounting exposure,refers to the effect that an unanticipated change in exchange rates will have on the

Translation exposure,

The underlying principle of the monetary/nonmonetary method is

With regard to foreign currency translation methods used by foreign MNCs,

The underlying principle of the monetary/nonmonetary method is

International Monetary System

Globalization and the Multinational Firm

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

Translation exposure measures

Which of the following is true?

Under FASB 52,when a net translation exposure exists,

The underlying principle of the current/noncurrent method is

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

The "reporting currency" is defined in FASB 52 as

Salient economic factors for determining the functional currency include

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

The current/noncurrent method of foreign currency translation was generally accepted in the United States from the 1930s until 1975,when

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

The underlying principle of the current/noncurrent method is

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

Which of the following is true?

Translation exposure,also frequently called accounting exposure,refers to the effect that an unanticipated change in exchange rates will have on the

Translation exposure,

The underlying principle of the monetary/nonmonetary method is

With regard to foreign currency translation methods used by foreign MNCs,

The underlying principle of the monetary/nonmonetary method is

International Monetary System

Globalization and the Multinational Firm

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