International Financial Management: Final
Exam Question and Correct Answers.
1) Translation exposure measures - Correct Answer 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.
2) According to your authors, the main purpose of translation is - Correct Answer to prepare
consolidated financial statements.
3) Historical exchange rates may be used for ________, while current exchange rates may be used for
________. - Correct Answer equity accounts and fixed assets; current assets and liabilities
If an imbalance results from the accounting method used for translation, the imbalance is taken either
to ________ or ________. - Correct Answer current income; equity reserves.
5) Generally speaking, translation methods by country define the translation process as a function of
what two factors? - Correct Answer foreign subsidiary independence; a firm's functional currency
6) A foreign subsidiary's ________ currency is the currency used in the firm's day-to-day operations. -
Correct Answer functional
7) The two basic methods for the translation of foreign subsidiary financial statements are the ________
method and the ________ method. - Correct Answer current rate; temporal
8) Gains or losses caused by translation adjustments when using the current rate method are reported
separately on the ________. - Correct Answer consolidated balance sheet
9) 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. - Correct Answer temporal; current rate
, 10) Under the U.S. method of translation procedures, if the financial statements of the foreign
subsidiary of a U.S. company are maintained in the local currency, and the local currency is the
functional currency, then - Correct Answer translation is accomplished through the current rate method.
11) Under the U.S. method of translation procedures, if the financial statements of the foreign
subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional
currency, then - Correct Answer translation is accomplished through the temporal method.
12) ________ occur as a result of changes in the value of currency whereas ________ occur as a result of
ongoing business activities. - Correct Answer Translation gains or losses; Operating gains or losses
13) The main technique to minimize translation exposure is called a/an ________ hedge. - Correct
Answer balance sheet
14) A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities -
Correct Answer be equal.
15) A Canadian subsidiary of a U.S. parent firm is instructed to bill an export to the parent in U.S. dollars.
The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the
sale of goods. Later, when the U.S. parent pays the subsidiary the contracted U.S. dollar amount, the
Canadian dollar has appreciated 10% against the U.S. dollar. In this example, the Canadian subsidiary
will record a - Correct Answer 10% foreign exchange loss on the U.S. dollar accounts receivable.
16) ________ gains and losses are "realized" whereas ________ gains and losses are only "paper." -
Correct Answer Transaction; translation
1) The choice of when and how to source equity globally is usually aided early on by the advice of -
Correct Answer an investment banker.
2) Which of the following is the typical order of sourcing capital abroad? - Correct Answer An
international bond issue, then an international bond issue in the target market, then cross listing the
outstanding issues on other exchanges.
Exam Question and Correct Answers.
1) Translation exposure measures - Correct Answer 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.
2) According to your authors, the main purpose of translation is - Correct Answer to prepare
consolidated financial statements.
3) Historical exchange rates may be used for ________, while current exchange rates may be used for
________. - Correct Answer equity accounts and fixed assets; current assets and liabilities
If an imbalance results from the accounting method used for translation, the imbalance is taken either
to ________ or ________. - Correct Answer current income; equity reserves.
5) Generally speaking, translation methods by country define the translation process as a function of
what two factors? - Correct Answer foreign subsidiary independence; a firm's functional currency
6) A foreign subsidiary's ________ currency is the currency used in the firm's day-to-day operations. -
Correct Answer functional
7) The two basic methods for the translation of foreign subsidiary financial statements are the ________
method and the ________ method. - Correct Answer current rate; temporal
8) Gains or losses caused by translation adjustments when using the current rate method are reported
separately on the ________. - Correct Answer consolidated balance sheet
9) 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. - Correct Answer temporal; current rate
, 10) Under the U.S. method of translation procedures, if the financial statements of the foreign
subsidiary of a U.S. company are maintained in the local currency, and the local currency is the
functional currency, then - Correct Answer translation is accomplished through the current rate method.
11) Under the U.S. method of translation procedures, if the financial statements of the foreign
subsidiary of a U.S. company are maintained in the local currency, and the U.S. dollar is the functional
currency, then - Correct Answer translation is accomplished through the temporal method.
12) ________ occur as a result of changes in the value of currency whereas ________ occur as a result of
ongoing business activities. - Correct Answer Translation gains or losses; Operating gains or losses
13) The main technique to minimize translation exposure is called a/an ________ hedge. - Correct
Answer balance sheet
14) A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities -
Correct Answer be equal.
15) A Canadian subsidiary of a U.S. parent firm is instructed to bill an export to the parent in U.S. dollars.
The Canadian subsidiary records the accounts receivable in Canadian dollars and notes a profit on the
sale of goods. Later, when the U.S. parent pays the subsidiary the contracted U.S. dollar amount, the
Canadian dollar has appreciated 10% against the U.S. dollar. In this example, the Canadian subsidiary
will record a - Correct Answer 10% foreign exchange loss on the U.S. dollar accounts receivable.
16) ________ gains and losses are "realized" whereas ________ gains and losses are only "paper." -
Correct Answer Transaction; translation
1) The choice of when and how to source equity globally is usually aided early on by the advice of -
Correct Answer an investment banker.
2) Which of the following is the typical order of sourcing capital abroad? - Correct Answer An
international bond issue, then an international bond issue in the target market, then cross listing the
outstanding issues on other exchanges.
