Why is it important that foreign currency financial statements are translated at the appropriate currency exchange rates? What would happen if companies can translate their foreign subsidiary's financial statements at whatever exchange rate they like? Can the integrity of consolidated financial statements be maintained in such situation?

Why is it important that foreign currency financial statements are translated at the appropriate currency exchange rates? What would happen if companies can translate their foreign subsidiary's financial statements at whatever exchange rate they like? Can the integrity of consolidated financial statements be maintained in such situation?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter27: Multinational Financial Management

Section: Chapter Questions

Problem 5MC

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What problemsarise when a multinational company operates in acountry whose currency is not convertible?
Which of the following suggests that the foreign entity's functional currency is the parent's currency? a. Intercompany transaction volume is low. b. Debt is serviced through local operations. c. There is an active and primarily local market. d. Sale prices are influenced by international factors.
What role does the unit of measurement assumption play in multinational accounting? a) It requires translation of foreign operations into reporting currency b) It only applies to domestic transactions c) It prohibits foreign currency transactions d) It requires all transactions in gold standard
Which of the following items will result to foreign currency transaction gain/loss due to settlement or remeasurement? Foreign currency denominated non-monetary liabilities such as unearned revenue, warranty liability, premium liability and deferred tax liability. Foreign currency denominated non-monetary assets such as inventory, PPE, intangible asset or prepaid asset. Foreign currency denominated monetary items such as accounts payable, accounts receivable, notes payable, loans receivable or interest payable. Foreign currency denominated income statement accounts such as revenue, income, expense or loss.
Explain what is a hedging arrangement and how does it reduce foreign currency risk exposure?
What are forward contracts? How can they beused to manage foreign exchange risk?