1

Fundamentals of Multinational Finance

, 3e (Moffett)
Chapter 11

Translation Exposure
11.1

Multiple Choice and True/False Questions

1)
Translation exposure may also be called ________ exposure.
accounting
Recognition
2)
________ exposure is the potential for an increase or decrease in the par
ent company's net worth and reported net income caused by a change i
n exchange rates since the last transaction.
D)
Translation
Answer:
Translation exposure measures
B) the potential for an increase or decrease in the parent company's net w
orth and reported net income caused by a change in exchange rates since
the last consolidation of international operations.
4) According to your authors, the main purpose of translation is

A) to prepare consolidated financial statements.

5) It is possible to use different exchange rates for different line items o
n a financial statement.
Answer: TRUE
6) If the same exchange rate were used to remeasure every line on a fina
ncial statement, then there would be no imbalances from remeasuring.
Answer: TRUE
7) Historical exchange rates may be used for ________, while current exc
hange rates may be used for ________.
B) equity accounts and fixed assets; current assets and liabilities
8) If an imbalance results from the accounting method used for translat
ion, the imbalance is taken either to ________ or ________.
C) current income; equity reserves
9) Generally speaking, translation methods by country define the transla
tion process as a function of what two factors?
location; foreign subsidiary independence
D) foreign subsidiary independence; a firm's functional currency
10) A/an ________ subsidiary is one in which the firm operates as an ext
ension of the parent company with cash flows highly interrelated with
the parent.
B) integrated foreign entity
11) Consider two different foreign subsidiaries of Georgia
Pacific Wood Products Inc. The first subsidiary mills trees in Canada and
ships its entire product to the Georgia-Pacific U.S. The second subsidiary
is also owned by the parent firm but is located in Japan and retails tropica
l hardwood furniture that it buys from many different sources. The first s

ubsidiary is likely a/an ________ foreign entity with most of its cash flows
in U.S. dollars, and the second
subsidiary is more of a/an ________ foreign entity.
C) integrated; selfsustaining
12) A foreign subsidiary's ________ currency is the currency used in the fi
rm's daytoday perations.
D) functional
13) The ________ determines accounting policy for U.S. firms.
C) Financial Accounting Standards Board (FASB)
14) The two basic methods for the translation of foreign subsidiary financ
ial statements are the ________ method and the ________ method.
A) current rate; temporal
15)
Exchange rate imbalances that are passed through the balance sheet affect
a firm's reported income, but imbalances transferred to the income statem
ent do not.
Answer: FALSE