Exam 13: Translation Exposure

If the parent firm and all subsidiaries denominate all exposed assets and liabilities in the parent's reporting currency this will ________ exposure but each subsidiary would have ________ exposure.

If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then

Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional currency, then

The temporal method of foreign currency translation gains or losses resulting from remeasurement are carried directly to current consolidated income and thus introduces volatility to consolidated earnings.

If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound increases in value from 1.40/£ to €1.45/£, the European firm has a translation ________.

The current rate method is the most prevalent method today for the translation of financial statements.

The two basic methods for the translation of foreign subsidiary financial statements are the ________ method and the ________ method.

Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in U.S. dollars,

Translation gains or losses can be quite different from operating gains or losses not only in magnitude but also in sign.

The biggest advantage of the current rate method of reporting translation adjustments is the fact that the gain or loss goes directly to the reserve account on the consolidated balance sheet and does not pass through the consolidated income statement.

The temporal rate method is the most prevalent method today for the translation of financial statements.

Translation exposure may also be called ________ exposure.

A/an ________ subsidiary is one in which the firm operates as an extension of the parent company with cash flows highly interrelated with the parent.

If a firm's subsidiary is using the local currency as the functional currency, which of the following is NOT a circumstance that could justify the use of a balance sheet hedge?

The basic advantage of the ________ method of foreign currency translation is that foreign nonmonetary assets are carried at their original cost in the parent's consolidated statement while the most important advantage of the ________ method is that the gain or loss from translation does not pass through the income statement.

If the same exchange rate were used to remeasure every line on a financial statement, then there would be no imbalances from remeasuring.

Under the U.S. method of translation procedures, if the financial statements of the foreign subsidiary of a U.S. company are maintained in the local currency, and the local currency is the functional currency, then

A Canadian subsidiary of a U.S. parent firm is instructed to bill an export to the parent in U.S. dollars. The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the sale of goods. Later, when the U.S. parent pays the subsidiary the contracted U.S. dollar amount, the Canadian dollar has appreciated 10% against the U.S. dollar. In this example, the Canadian subsidiary will record a

If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound drops in value from €1.40/£ to euro 1.30/£, the European firm has a translation ________.

If an imbalance results from the accounting method used for translation, the imbalance is taken either to ________ or ________.