Translation Exposure

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Questions Bank

Multinational Financial Management: Opportunities and Challenges
The International Monetary System
The Balance of Payments
Financial Goals and Corporate Governance
The Foreign Exchange Market
International Parity Conditions
Foreign Currency Derivatives: Futures and Options
Interest Risk and Swaps
Foreign Exchange Rate Determination and Intervention
Transaction Exposure
Translation Exposure
Operating Exposure
Global Cost and Availability of Capital
Funding the Multinational Firm
Multinational Tax Management
International Trade Finance
Foreign Direct Investment and Political Risk
Multinational Capital Budgeting and Cross-Border Acquisitions

All Questions

Question 1

Free

Multiple Choice

Translation exposure may also be called ________ exposure.

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transaction

operating

accounting

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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Transaction

Operating

Currency

Translation

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Question 3

Free

Multiple Choice

Translation exposure measures:

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

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.

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

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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to prepare consolidated financial statements.

to help management assess the performance of foreign subsidiaries.

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

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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fixed assets and current assets; income and expense items

equity accounts and fixed assets; current assets and liabilities

current assets and liabilities; equity accounts and fixed assets

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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the bank; the post office

depreciation; the market for foreign exchange swaps

current income; equity reserves

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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size; location

a firm's functional currency; location

location; foreign subsidiary independence

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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self-sustaining foreign

integrated foreign entity

foreign

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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domestic; integrated

self-sustaining; domestic

integrated; self-sustaining

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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local

integrated

notational dollar

functional

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Question 11

Multiple Choice

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

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Securities and Exchange Commission (SEC)

Federal Reserve System (Fed)

Financial Accounting Standards Board (FASB)

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.

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current rate; temporal

temporal; proper timing

current rate; future rate

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:

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consolidated statement of cash flow.

consolidated income statement.

consolidated balance sheet.

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.

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monetary; current rate

temporal; current rate

temporal; monetary

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:

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translation is accomplished through the current rate method.

translation is accomplished through the temporal method.

translation is not required.

the translation method to be used is not obvious.

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Translation Exposure

Translation exposure may also be called ________ exposure.

________ 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.

Translation exposure measures:

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

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

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

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

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.

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

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

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

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

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.

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

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.

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

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

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:

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

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

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