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.