Chapter 19, Problem 1CT

What term is used to describe the process of reducing foreign exchange risk? Choose the correct. A)international accounting B)exposure C)hedging D)harmonization

Question 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?

Foreign exchange risk arises when: A)business transactions are denominated in foreign currencies. B)sales are made to customers in a foreign country. C)goods or services are purchased from suppliers in a foreign country. D)accounting reports are prepared in a foreign currency.