Management Of Translation Exposure

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Question 1
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True/False

Under the monetary/nonmonetary method,revenue and expense items associated with nonmonetary accounts,such as cost of goods sold and depreciation,are translated at the historical rate associated with the balance sheet account.

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True

False

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Question 2
Free
Multiple Choice

Translation exposure refers to

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A

accounting exposure.

B

the effect that an unanticipated change in exchange rates will have on the consolidated financial reports of an MNC.

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

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Question 3
Free
Multiple Choice

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

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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.

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Question 4
Free
Multiple Choice

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

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A

One

B

Two

C

Three

D

Four

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Question 5
Free
Multiple Choice

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

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A

choice of accounting methodology.

B

consolidated financial reports of an MNC.

C

firms competitive position.

D

cash flows realized from foreign operations.

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Question 6
Multiple Choice

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

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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
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Question 7
Multiple Choice

The sensitivity of "realized" domestic currency values of the firm's contractual cash flows denominated in foreign currency to unexpected changes in the exchange rate is

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A
transaction exposure.
B
translation exposure.
C
economic exposure.
D
none of the above
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Question 8
Multiple Choice

The management of translation exposure is best described as

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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.
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Question 9
Multiple Choice

The sensitivity of the firm's consolidated financial statements to unexpected changes in the exchange rate is

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A
transaction exposure.
B
translation exposure.
C
economic exposure.
D
none of the above
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Question 10
Multiple Choice

The extent to which the value of the firm would be affected by unexpected changes in the exchange rate is

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A
transaction exposure.
B
translation exposure.
C
economic exposure.
D
none of the above
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Question 11
Multiple Choice

Which of the following is true?

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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 that 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 above
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Question 12
Multiple Choice

What does it mean to have redenominated an asset in terms of the dollar?

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A
You have undertaken a hedging strategy that gives the asset a constant dollar value.
B
Multiply the foreign currency value of the asset by the spot exchange rate.
C
Undertaken accounting changes to eliminate translation exposure.
D
None of the above
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Question 13
Multiple Choice

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

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A
The Federal Accounting Standards Board (FASB).
B
The International Accounting Standards Board (IASB).
C
The Financial Accounting Standards Board (FASB).
D
The Securities and Exchange Commission (SEC)
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Question 14
Multiple Choice

The difference between accounting exposure and translation exposure

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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.
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Question 15
Multiple Choice

When exchange rates change

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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
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Question 16
Multiple Choice

Translation exposure measures

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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
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Question 17
Multiple Choice

The extent to which the value of the firm would be affected by expected changes in the exchange rate is

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A
transaction exposure.
B
translation exposure.
C
economic exposure.
D
none of the above
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Question 18
Multiple Choice

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

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A
FASB 2 became effective.
B
FASB 4 became effective.
C
FASB 6 became effective.
D
FASB 8 became effective.
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Question 19
Multiple Choice

The underlying principle of the current/noncurrent method is that assets and liabilities should be translated based on their maturity.

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A
Current assets and liabilities are converted at the current exchange rate in effect when the cash flow associated with the asset or liability actually occurred.Non-current assets and liabilities are translated at the historical exchange rate that prevailed when the asset was recognized.
B
Current assets and liabilities, which by definition have a maturity of one year or less, are converted at the current exchange rate.Non-current assets and liabilities are translated at the historical exchange rate.
C
All assets and liabilities are converted at the current exchange rate.
D
None of the above
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Question 20
Multiple Choice

The generally accepted method for consolidating the financial reports of an MNC from the 1930s to 1975 was

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A
current/noncurrent method.
B
monetary/nonmonetary method.
C
temporal method.
D
current rate method.
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