Translation Exposure

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Question 1
Free
Multiple Choice

Translation exposure may also be called ________ exposure.

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A

transaction

B

operating

C

accounting

D

currency

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Question 2
Free
Multiple Choice

________ exposure is the potential for an increase or decrease in the parent company's net worth and reported net income caused by a change in exchange rates since the last transaction.

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A

Transaction

B

Operating

C

Currency

D

Translation

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Question 3
Free
Multiple Choice

Translation exposure measures:

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A

changes in the value of outstanding financial obligations incurred prior to a change in exchange rates.

B

the potential for an increase or decrease in the parent company's net worth and reported net income caused by a change in exchange rates since the last consolidation of international operations.

C

an unexpected change in exchange rates impact on short run expected cash flows.

D

none of the above

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Question 4
Free
Multiple Choice

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

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A

to prepare consolidated financial statements.

B

to help management assess the performance of foreign subsidiaries.

C

to act as an interpreter for managers without foreign language skills.

D

none of the above

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Question 5
Free
Multiple Choice

Historical exchange rates may be used for ________ , while current exchange rates may be used for ________ .

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A

fixed assets and current assets; income and expense items

B

equity accounts and fixed assets; current assets and liabilities

C

current assets and liabilities; equity accounts and fixed assets

D

equity accounts and current liabilities; current assets and fixed assets

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Question 6
Multiple Choice

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

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A
the bank; the post office
B
depreciation; the market for foreign exchange swaps
C
current income; equity reserves
D
current liabilities; equity reserves
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Question 7
Multiple Choice

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

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A
size; location
B
a firm's functional currency; location
C
location; foreign subsidiary independence
D
foreign subsidiary independence; a firm's functional currency
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Question 8
Multiple Choice

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.

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A
self-sustaining foreign
B
integrated foreign entity
C
foreign
D
none of the above
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Question 9
Multiple Choice

Consider two different foreign subsidiaries of Georgia-Pacific Wood Products Inc. The first subsidiary mills trees in Canada and ships its entire product to the Georgia-Pacific U.S. The second subsidiary is also owned by the parent firm but is located in Japan and retails tropical hardwood furniture that it buys from many different sources. The first subsidiary is likely a/an ________ foreign entity with most of its cash flows in U.S. dollars, and the second subsidiary is more of a/an ________ foreign entity.

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A
domestic; integrated
B
self-sustaining; domestic
C
integrated; self-sustaining
D
self-sustaining; integrated
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Question 10
Multiple Choice

A foreign subsidiary's ________ currency is the currency used in the firm's day-to-day operations.

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A
local
B
integrated
C
notational dollar
D
functional
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Question 11
Multiple Choice

The ________ determines accounting policy for U.S. firms.

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A
Securities and Exchange Commission (SEC)
B
Federal Reserve System (Fed)
C
Financial Accounting Standards Board (FASB)
D
General Agreement on Tariffs and Trade (GATT)
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Question 12
True/False

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

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True
False
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Question 13
True/False

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

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True
False
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Question 14
True/False

A foreign subsidiary's functional currency is the currency of the primary economic environment in which the subsidiary operates and in which it generates cash flows.

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True
False
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Question 15
True/False

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

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True
False
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Question 16
Essay

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.

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Question 17
Multiple Choice

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

Choose correct answer/s
A
current rate; temporal
B
temporal; proper timing
C
current rate; future rate
D
none of the above
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Question 18
Multiple Choice

Gains or losses caused by translation adjustments when using the current rate method are reported separately on the:

Choose correct answer/s
A
consolidated statement of cash flow.
B
consolidated income statement.
C
consolidated balance sheet.
D
none of the above
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Question 19
Multiple Choice

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.

Choose correct answer/s
A
monetary; current rate
B
temporal; current rate
C
temporal; monetary
D
current rate; temporal
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Question 20
Multiple Choice

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:

Choose correct answer/s
A
translation is accomplished through the current rate method.
B
translation is accomplished through the temporal method.
C
translation is not required.
D
the translation method to be used is not obvious.
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