1) Translation exposure may also be called ________ exposure.

10.4 Translation Exposure

1) Translation exposure may also be called ________ exposure.

A) transaction

B) operating

C) accounting

D) currency

2) ________ 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.

A) Transaction

B) Operating

C) Currency

D) Translation

3) Translation exposure measures

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.

4) According to your authors, the main purpose of translation is

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.

 

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

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

A) fixed asses 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

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

A) local

B) integrated

C) notational dollar

D) functional

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

A) current rate; temporal

B) temporal; proper timing

C) current rate; future rate

D) none of the above

9) Exchange rate imbalances that are passed through the balance sheet affect a firm’s reported income, but imbalances transferred to the income statement do not.

 

10) The current rate method is the most prevalent method today for the translation of financial statements.

11) The temporal rate method is the most prevalent method today for the translation of financial statements.

12) Gains or losses caused by translation adjustments when using the current rate method are reported separately on the ________.

A) consolidated statement of cash flow

B) consolidated income statement

C) consolidated balance sheet

D) none of the above

13) The biggest advantage of the current rate method of reporting translation adjustments is the fact that the gain or loss goes directly to the reserve account on the consolidated balance sheet and does not pass through the consolidated income statement.

14) Under the current rate method, specific assets and liabilities are translated at exchange rates consistent with the timing of the item’s creation.

15) Under the temporal rate method, specific assets and liabilities are translated at exchange rates consistent with the timing of the item’s creation.

 

16) 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.

A) monetary; current rate

B) temporal; current rate

C) temporal; monetary

D) current rate; temporal

17) 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.

18) 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