Multinational Business Finance 14th Edition By David K. Eiteman – Test Bank

Chapter 11 Translation Exposure

11.1 Overview of Translation

1) Translation exposure may also be called ________ exposure.
A) transaction
B) operating
C) accounting
D) currency
Answer: C
Diff: 1
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge

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
Answer: D
Diff: 1
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge

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
Answer: B
Diff: 2
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge

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
Answer: A
Diff: 1
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge
5) Historical exchange rates may be used for ________, while current exchange rates may be used for ________.
A) fixed assets 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
Answer: B
Diff: 2
L.O.: 11.1 Overview of Translation
Skill: Conceptual
AACSB: Application of knowledge

6) If an imbalance results from the accounting method used for translation, the imbalance is taken either to ________ or ________.
A) the bank; the post office
B) depreciation; the market for foreign exchange swaps
C) current income; equity reserves
D) current liabilities; equity reserves
Answer: C
Diff: 2
L.O.: 11.1 Overview of Translation
Skill: Conceptual
AACSB: Application of knowledge

7) Generally speaking, translation methods by country define the translation process as a function of what two factors?
A) size; location
B) a firm’s functional currency; location
C) location; foreign subsidiary independence
D) foreign subsidiary independence; a firm’s functional currency
Answer: D
Diff: 2
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge

8) 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) self-sustaining foreign
B) integrated foreign entity
C) foreign
D) none of the above
Answer: B
Diff: 2
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge
9) 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.
A) domestic; integrated
B) self-sustaining; domestic
C) integrated; self-sustaining
D) self-sustaining; integrated
Answer: C
Diff: 2
L.O.: 11.1 Overview of Translation
Skill: Conceptual
AACSB: Application of knowledge

10) 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
Answer: D
Diff: 1
L.O.: 11.1 Overview of Translation
Skill: Recognition
AACSB: Application of knowledge