Question 1

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 2

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 3

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 4

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

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 6

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

Question 7

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 8

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 function 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 function currency should be the home currency. 
D) all of the above

Question 9

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.

Question 10

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

Question 11

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 12

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 13

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 14

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 15

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 16

Which of the following are 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) Both a and b 
D) None of the above 
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) Both a and b 
D) None of the above

Question 17

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 18

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 19

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 20

Which of the following is a translation method where a "plug" equity account called cumulative translation adjustment is used?

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

Exam 10: Management of Translation Exposure

The actual translation process prescribed by FASB 52 is

Using the temporal method, monetary accounts such as cash

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

Which of the above statements pertain to FASB 52?

The "functional currency" is defined in FASB 52 as

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

When exchange rates change

When determining the functional currency,

The underlying principle of the temporal method is

The "reporting currency" is defined in FASB 52 as

FASB 52 requires

The underlying principle of the current/noncurrent method is

With regard to translation exposure versus operating exposure

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

The simplest of all translation methods to apply is

Which of the following are true?

Which of the following statements is false?

The difference between accounting exposure and translation exposure

Translation exposure measures

Which of the following is a translation method where a "plug" equity account called cumulative translation adjustment is used?

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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