Exam 11: Translation Exposure

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:

Translation exposure measures:

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?

A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities:

According to your authors,the main purpose of translation is:

________ occur as a result of changes in the value of currency,whereas ________ occur as a result of ongoing business activities.

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

It is highly unusual for a multinational firm to have both integrated foreign entities AND self-sustaining foreign entities.

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:

Under U.S.accounting and translation practices,use of the current rate method is termed ________ while use of the temporal method is termed ________.

It is possible to use different exchange rates for different line items on a financial statement.

Most countries specify the translation method to be used by a foreign subsidiary based on its business operations or the functional currency.Explain both subsidiary characterization criteria and the one adopted in the United States.

If the British subsidiary of a European firm has net exposed assets of £250,000,and the pound drops in value from €1.35/£ to €1.30/£,the European firm has a translation:

One possible reason for a balance sheet hedge could be because the firm has debt covenants or bank agreements that state the firm's debt/equity ratios will be maintained within specific limits.

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

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

Generally speaking,translation methods by country define the translation process as a function of what two factors?

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

If management expects a foreign currency to depreciate,it could minimize translation exposure by increasing net exposed assets.

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: