Under the current rate method specific assets and liabilities are translated at

Under the current rate method specific assets and

This preview shows page 40 - 42 out of 44 pages.

48) Under the current rate method, specific assets and liabilities are translated at exchange rates consistent with the timing of the item's creation. 49) Under the temporal rate method, specific assets and liabilities are translated at exchange rates consistent with the timing of the item's creation. 50) 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. 51) The current rate method of foreign currency translation gains or losses resulting from remeasurement are carried directly to current consolidated income and thus introduces volatility to consolidated earnings. 52) The temporal method of foreign currency translation gains or losses resulting from remeasurement are carried directly to current consolidated income and thus introduces volatility to consolidated earnings. 53) The main technique to minimize translation exposure is called a/an ________ hedge. 54) A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities 55) If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then
Background image
41 | P a g e F i n a l E x a m - I n t e r n a t i o n a l F i n a n c e 56) 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) The foreign subsidiary is about to be liquidated, so that the value of its Cumulative Translation Adjustment (CTA) would be realized. B) The firm has debt covenants or bank agreements that state the firm's debt/equity ratio will be maintained within specific limits. C) The foreign subsidiary is operating is a hyperinflationary environment. D) All of the above are appropriate reasons to use a balance sheet hedge.
Background image
Image of page 42

You've reached the end of your free preview.

Want to read all 44 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture