Question 1

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

Accepted Answer

A)  One
B)  Two
C)  Three
D)  Four

Question 2

Salient economic factors for determining the functional currency include

Accepted Answer

A)  cash flow indicators.
B)  sales price indicators.
C)  sales market indicators.
D)  all of the above

Question 3

When using the current/noncurrent method,current assets are defined as

Accepted Answer

A)  inventory that is currently salable.
B)  assets with a maturity of one year or less.
C)  assets with a maturity of 90 days or less.
D)  none of the above

Question 4

A derivatives hedge that seeks to eliminate translation exposure

Accepted Answer

A)  eliminate any mismatch of the rate of change in net assets and the rate of change in net liabilities denominated in the same currency.
B)  really involves speculation about foreign exchange rate changes.
C)  by simultaneously going long and short in currency futures contracts.
D)  none of the above

Question 5

FASB 8 is essentially the

Accepted Answer

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

Question 6

The "reporting currency" is defined in FASB 52 as

Accepted Answer

A)  the currency of the primary economic environment in which the entity operates.
B)  the currency in which the MNC prepares its consolidated financial statements.
C)  a currency that is not the parent firm's home country currency.
D)  both a and c

Question 7

Consider a U.S.-based MNC with manufacturing activities in Japan.The result of a change in the ¥-$ exchange rate on the assets and liabilities of the consolidated balance sheet is:   Exposed assets ¥700,000,000 Exposed liabilities ¥500,000,000\begin{array} { l c } 	ext { Exposed assets } & ¥ 700,000,000 \	ext { Exposed liabilities } & ¥ 500,000,000\end{array} Exposed assets  Exposed liabilities ​¥700,000,000¥500,000,000​  Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "balance sheet hedge" of

Accepted Answer

A)  ¥200,000,000 more liabilities denominated in yen.
B)  ¥200,000,000 less assets denominated in yen.
C)  both a)  or b) 
D)  none of the above

Question 8

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

Accepted Answer

A)  choice of accounting methodology.
B)  consolidated financial reports of an MNC.
C)  firms competitive position.
D)  cash flows realized from foreign operations.

Question 9

A U.S.parent firm,as result of its business activities in Germany,has a net exposure of €1,000,000.The consolidated reports were prepared at the year end for the last two successive years.If the exchange rates on these reporting dates changed from $1.00 = €1.10 to $1.00 = €1.00,then the translation exposure report will indicate a "reporting currency imbalance" of

Accepted Answer

A)  $90,910.
B)  $0.
C)  -$90,910.
D)  none of the above A

Question 10

Under which accounting method are most income statement accounts translated at the average exchange rate for the period?

Accepted Answer

A)  Current/noncurrent method
B)  Monetary/nonmonetary method
C)  Temporal method
D)  Current rate method

Question 11

With regard to foreign currency translation methods used by foreign MNCs,

Accepted Answer

A)  foreign currency translation methods are generally only used by U.S.-based MNCs since foreign firms have a built in hedge by being foreign.
B)  are generally the same methods used by U.S.-based firms.
C)  are exactly the same methods used by U.S.-based firms since GAAP is GAAP.
D)  none of the above are true statements. D

Question 12

With regard to research on the stock price reaction to mandated accounting changes such as FASB 52

Accepted Answer

A)  the results suggest that market participants seem to think that changes in reported earnings do not change the actual cash flows in multinational firms.
B)  the results suggest that market agents react to "cosmetic" earning changes.
C)  the results suggest that market agents do not react to cosmetic earning changes that do not affect value.
D)  none of the above

Question 13

Calculate the cumulative translation adjustment for this U.S.MNC translating the balance sheet and income statement of a French subsidiary,which keeps its books in euro,but that is translated into U.S.dollars using the current rate method,the reporting currency of the U.S.MNC.
The subsidiary is at the end of its first year of operation.
The historical exchange rate is $1.60/€1.00 and the most recent exchange rate is $1.50/€

Accepted Answer

The answer of Calculate the cumulative translation adjustment for this...

Question 14

The underlying principle of the temporal method is

Accepted Answer

A)  assets and liabilities should be translated based on their maturity.
B)  monetary balance sheet accounts should be translated at the spot rate; nonmonetary accounts are translated at the historical rate in effect when the account was first recorded.
C)  monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates.
D)  all balance sheet accounts are translated at the current exchange rate, except stockholders' equity.

Question 15

The impact of financing in determining the functional currency

Accepted Answer

A)  financing does not impact the choice of functional currency due to the integrated nature of capital markets.
B)  if the financing of the foreign entity is primarily denominated in the foreign currency and the debt service obligations are normally handled by the foreign entity, the functional currency is the foreign currency.
C)  if the financing of the foreign entity is primarily from the parent, with debt service obligations normally handled by the parent, the functional currency is the home currency.
D)  both b and c

Question 16

Using the temporal method,monetary accounts such as cash

Accepted Answer

A)  are not translated.
B)  are translated at the average exchange rate prevailing over the reporting period.
C)  are translated at the current forward exchange rate.
D)  are translated at the current spot exchange rate.

Question 17

Which of the following statements is false?

Accepted Answer

A)  Most income statement items under the current/noncurrent method are translated at the average exchange rate for the accounting period.
B)  Under the current/noncurrent method, revenue and expense items that are associated with current assets or liabilities, such as depreciation expense, are translated at the historical rate that applies to the applicable balance sheet item.
C)  Under the current/noncurrent method, revenue and expense items that are associated with noncurrent assets or liabilities, such as depreciation expense, are translated at the historical rate that applies to the applicable balance sheet item.
D)  Depreciation expense is translated at the historical rate that applies to the applicable depreciable asset items.

Question 18

Under FASB 52,when a net translation exposure exists,

Accepted Answer

A)  a derivatives hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change.
B)  a money market hedge is necessary to bring balance to the consolidated balance sheet after an exchange rate change.
C)  a cumulative translation adjustment account is necessary to bring balance to the consolidated balance sheet after an exchange rate change.
D)  none of the above

Question 19

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

Accepted Answer

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

Question 20

The underlying principle of the monetary/nonmonetary method is

Accepted Answer

A)  assets and liabilities should be translated based on their maturity.
B)  monetary accounts have a similarity because their value represents a sum of money whose currency equivalent after translation changes each time the exchange rate changes.
C)  monetary accounts are translated at the current exchange rate; other accounts are translated at the current exchange rate if they are carried on the books at current value; items carried at historical cost are translated at historic exchange rates.
D)  all balance sheet accounts are translated at the current exchange rate, except for stockholders' equity.A "plug" equity account named cumulative translation adjustment (CT
A)   is used to make the balance sheet balance, since translation gains or losses do not go through the income statement according to this method.

Exam 10: Management of Translation Exposure

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

Correct Answer
verified

Salient economic factors for determining the functional currency include

Correct Answer
verified

When using the current/noncurrent method,current assets are defined as

Correct Answer
verified

A derivatives hedge that seeks to eliminate translation exposure

Correct Answer
verified

FASB 8 is essentially the

Correct Answer
verified

The "reporting currency" is defined in FASB 52 as

Correct Answer
verified

Correct Answer
verified

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

Correct Answer
verified

Correct Answer
verified
A

Under which accounting method are most income statement accounts translated at the average exchange rate for the period?

Correct Answer
verified

With regard to foreign currency translation methods used by foreign MNCs,

Correct Answer
verified
D

With regard to research on the stock price reaction to mandated accounting changes such as FASB 52

Correct Answer
verified

Correct Answer
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11ea7281_b332_f496_9608_af09e2045005_TB3610_00

The underlying principle of the temporal method is

Correct Answer
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The impact of financing in determining the functional currency

Correct Answer
verified

Using the temporal method,monetary accounts such as cash

Correct Answer
verified

Which of the following statements is false?

Correct Answer
verified

Under FASB 52,when a net translation exposure exists,

Correct Answer
verified

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

Correct Answer
verified

The underlying principle of the monetary/nonmonetary method is

Correct Answer
verified

Exam 10: Management of Translation Exposure

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

Correct AnswerverifiedShow Answer

Salient economic factors for determining the functional currency include

Correct AnswerverifiedShow Answer

When using the current/noncurrent method,current assets are defined as

Correct AnswerverifiedShow Answer

A derivatives hedge that seeks to eliminate translation exposure

Correct AnswerverifiedShow Answer

FASB 8 is essentially the

Correct AnswerverifiedShow Answer

The "reporting currency" is defined in FASB 52 as

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedA

Under which accounting method are most income statement accounts translated at the average exchange rate for the period?

Correct AnswerverifiedShow Answer

With regard to foreign currency translation methods used by foreign MNCs,

Correct AnswerverifiedD

With regard to research on the stock price reaction to mandated accounting changes such as FASB 52

Correct AnswerverifiedShow Answer

Correct Answerverified11ea7281_b332_f496_9608_af09e2045005_TB3610_00

The underlying principle of the temporal method is

Correct AnswerverifiedShow Answer

The impact of financing in determining the functional currency

Correct AnswerverifiedShow Answer

Using the temporal method,monetary accounts such as cash

Correct AnswerverifiedShow Answer

Which of the following statements is false?

Correct AnswerverifiedShow Answer

Under FASB 52,when a net translation exposure exists,

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The underlying principle of the monetary/nonmonetary method is

Correct AnswerverifiedShow Answer

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A

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D

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11ea7281_b332_f496_9608_af09e2045005_TB3610_00

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