International Accounting
5th Edition
ISBN: 9781259747984
Author: Doupnik, Timothy S., Finn, Mark T., Gotti, Giorgio
Publisher: Mcgraw-hill Education,
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Textbook Question
Chapter 10, Problem 7Q
When might it be appropriate to evaluate the performance of a foreign subsidiary in terms of local currency rather than in terms of parent company currency?
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What are the circumstances under which the capital expenditure of a foreign subsidiary might have a positive NPV in local currency terms but be unprofitable from the parent firm’s perspective?
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What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure?
In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses?
How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country?
What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods?
What are the major procedural differences in applying the current rate and temporal methods of translation?
Clarke Company has a subsidiary operating in a foreign country. In relation to this subsidiary, what does the term functional currency mean? How is the functional currency determined?
Chapter 10 Solutions
International Accounting
Ch. 10 - Prob. 1QCh. 10 - What makes calculation of NPV for a foreign...Ch. 10 - How does the evaluation of a potential foreign...Ch. 10 - Prob. 4QCh. 10 - How does an ethnocentric organizational structure...Ch. 10 - Prob. 6QCh. 10 - When might it be appropriate to evaluate the...Ch. 10 - Prob. 8QCh. 10 - Prob. 9QCh. 10 - How can a local currency operating budget and...
Ch. 10 - Prob. 11QCh. 10 - What is the advantage of using a projected future...Ch. 10 - Prob. 3EPCh. 10 - Prob. 4EPCh. 10 - Imogdi Corporation (a U.S-based company) has a...Ch. 10 - Philadelphia, Inc. (a Greek company) has a foreign...Ch. 10 - Fitzwater Limited (an Irish company) has a foreign...Ch. 10 - Prob. 9EPCh. 10 - Viking Corporation (a U.S.-based company) has a...Ch. 10 - Duncan Street Company (DSC), a British company, is...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- A foreign subsidiary with more revenue than expenses impacted by foreign currency exchange rate movements will be favorably affected by an appreciation of the foreign currency. Group of answer choices True Falsearrow_forwardClarke Company operates a subsidiary in another nation. What does the phrase functional currency signify in reference to this subsidiary? How is the nominal value of the functional currency determined?arrow_forwardAssume that a U.S. company has a foreign subsidiary whose functional currency is the U.S. dollar. Explain how exchange rates between the foreign currency and the dollar would have to change in order to result in a current-year remeasurement loss and how the company could use a foreign currency loan receivable or payable to hedge against its net investment in the foreign subsidiary.arrow_forward
- 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.arrow_forwardDiscuss any current financial issues that affect the operating environment of the MNC distibuting via export and explain how these issues affect the company’s foreign currency exposurearrow_forwardAssuming that the functional currency of a foreign subsidiary is the local currency, which of the following accounts would be translated at the current rate on the Balance Sheet date (B/S Rate)? a.Additional Paid-In Capital b.Cost of Goods Sold c.Retained Earnings d.Allowance for Doubtful Accountsarrow_forward
- The effects of changes in foreign exchange rates states that where an entity has foreign operations, such as overseas subsidiaries, branches, joint ventures or associates, it should determine the functional currency of that foreign operation. MFRS 121 The Effects of Changes in Foreign Exchange Rates deals with this issue. Required:Explain the factors which should be taken into consideration in determining whether or not the functional currency of a foreign operation is the same as that of its parent.arrow_forwardWhat modifications may be made to the domestic cost of capital for a foreign venture to account for currency rate and political risk?arrow_forwardWhich cash flows are important for an overseas investment: those generated by the subsidiary in the country in which it operates or those sent to the parent firm in dollars?arrow_forward
- what are the the foreign exchange exposure of a multinational company with it's headquarters in Jamaica and how can the company plan to manage this exposure.arrow_forwardWhat are the relevant cash flows for an international investment:the cash flow produced by the subsidiary in the country whereit operates, or the cash flows in dollars that it sends to its parentcompany?arrow_forwardWhich is the most simple way that is able to protect a U.S firm's earnings of its consolidated income statement in the depreciation of euro relative to U.S. dollar? A. Selling euros forward in the foreign exchange market. B. Partner with the local firm of the oversea market. C. Purchasing euros forward in the foreign exchange market. D. Establish a subsidiary in the oversea economy.arrow_forward
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