Question 1

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 options 
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 options

Question 2

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 3

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 4

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 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 5

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 6

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 7

How many methods of foreign currency translation have been used in recent years? (U.S.GAAP.)

Accepted Answer

A) One 
B) Two 
C) Three 
D) Four 
A) One 
B) Two 
C) Three 
D) Four

Question 8

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 9

FASB 8

Accepted Answer

A) required taking foreign exchange gains or losses through the income statement. 
B) caused reported earnings to fluctuate substantially from year to year. 
C) ran into acceptance problems from the accounting profession and MNCs. 
D) all of the options 
A) required taking foreign exchange gains or losses through the income statement. 
B) caused reported earnings to fluctuate substantially from year to year. 
C) ran into acceptance problems from the accounting profession and MNCs. 
D) all of the options

Question 10

The stated objectives of FASB 52 are

Accepted Answer

A) to provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity. 
B) to 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. 
C) to provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity,and to 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. 
D) none of the options 
A) to provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity. 
B) to 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. 
C) to provide information that is generally compatible with the expected economic effects of a rate change on an enterprise's cash flows and equity,and to 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. 
D) none of the options

Question 11

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 12

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 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 13

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 14

The impact of financing in determining the functional currency is that

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 are normally handled by the parent,the functional currency is the home currency. 
D) 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.Additionally,if the financing of the foreign entity is primarily from the parent,with debt service obligations are normally handled by the parent,the functional currency is the home currency. 
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 are normally handled by the parent,the functional currency is the home currency. 
D) 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.Additionally,if the financing of the foreign entity is primarily from the parent,with debt service obligations are normally handled by the parent,the functional currency is the home currency.

Question 15

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 16

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: $$\begin{array} { l l l } 
\text { Exposed assets } & \text {  ¥ } & 700,000,000 \
\text { Exposed liabilities } & \text {  ¥ } & 500,000,000
\end{array}$$ 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 short position in ¥200,000,000 currency futures or long position in ¥200,000,000 currency futures. 
D) none of the options 
A) short position in ¥200,000,000 currency futures. 
B) long position in ¥200,000,000 currency futures. 
C) either short position in ¥200,000,000 currency futures or long position in ¥200,000,000 currency futures. 
D) none of the options

Question 17

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) 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 stockholder equity. 
D) all of the options 
A) income statement items are to be translated at the exchange rate at the dates the items are recognized. 
B) 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 stockholder equity. 
D) all of the options

Question 18

The underlying philosophy of the monetary/nonmonetary method is that

Accepted Answer

A) monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation is independent of exchange rate changes. 
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) assets and liabilities should be translated based on their maturity. 
D) most income statement items are translated at the average exchange rate for the period.Depreciation and cost of goods sold,however,are translated at historical rates if the associated balance sheet accounts are carried at historical costs. 
A) monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation is independent of exchange rate changes. 
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) assets and liabilities should be translated based on their maturity. 
D) most income statement items are translated at the average exchange rate for the period.Depreciation and cost of goods sold,however,are translated at historical rates if the associated balance sheet accounts are carried at historical costs.

Question 19

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) differs substantially with regard to the treatment of inventory and classifies accounts on the basis of similarity of attributes rather than the similarity of maturities. 
D) none of the options 
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) differs substantially with regard to the treatment of inventory and classifies accounts on the basis of similarity of attributes rather than the similarity of maturities. 
D) none of the options

Question 20

The underlying principle of the temporal 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.

Generally speaking,

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

FASB 8 is essentially the

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

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

How many methods of foreign currency translation have been used in recent years? (U.S.GAAP.)

Which of the following statements is false?

FASB 8

The stated objectives of FASB 52 are

The management of translation exposure is best described as

The underlying principle of the current rate method is

FASB 52 requires

The impact of financing in determining the functional currency is that

The underlying principle of the temporal method is

Under the current rate method,

The underlying philosophy of the monetary/nonmonetary method is that

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

The underlying principle of the temporal 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

Generally speaking,

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

FASB 8 is essentially the

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

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

How many methods of foreign currency translation have been used in recent years? (U.S.GAAP.)

Which of the following statements is false?

FASB 8

The stated objectives of FASB 52 are

The management of translation exposure is best described as

The underlying principle of the current rate method is

FASB 52 requires

The impact of financing in determining the functional currency is that

The underlying principle of the temporal method is

Under the current rate method,

The underlying philosophy of the monetary/nonmonetary method is that

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

The underlying principle of the temporal 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