Multinational Finance Evaluating The Opportunities, Cost, And Risks Of Multinational Operations, 6th Edition By Kirt C. Butler – Test Bank
Chapter 11 Managing Translation Exposure to Currency Risk
Notes to instructors:
Answers to non-numeric multiple choice questions are arranged alphabetically, so that answers are randomly assigned to the five outcomes.
1. Translation exposure refers to the impact of exchange rate changes on the parent firm’s consolidated financial statements.
2. Translation exposure is defined as change in the value of contractual cash flows due to unexpected changes in currency values.
False. This is transaction exposure.
3. Historical cost accounting is reliable, but is less relevant than fair value accounting.
4. When market prices are unavailable, historical costs are more reliable than market values.
5. Under ASC 830-30 Translation of Financial Statements, changes in the translated value of balance sheet items are placed in a contra account on the asset side of the balance sheet.
False. Under the current rate method of ASC 830-30, changes in the translated value of balance sheet items are placed into a cumulative translation adjustment (CTA) account under owners’ equity.
6. Most businesses maintain positive net working capital, so a foreign currency appreciation is more likely to be associated with a translation gain than a translation loss.
7. Under ASC 830-30 Translation of Financial Statements, translation gains or losses are reported on the balance sheet as a cumulative translation adjustment.
8. Under ASC 830-30 Translation of Financial Statements, translation gains and losses are not flowed through the income statement. Instead, they are accumulated in an account in the equity portion of the balance sheet.
9. According to ASC 830-30 Translation of Financial Statements, all income statement items are translated at the current exchange rate.
10. According to ASC 830-30 Translation of Financial Statements, all assets and liabilities are translated at the current exchange rate.
False. Common equity is translated at historical exchange rates.