27 câu hỏi
A balance sheet hedge requires that the amount of exposed foreign currency assets and liabilities
have a 2:1 ratio of assets to liabilities.
have a 2:1 ratio of liabilities to assets.
have a 2:1 ratio of liabilities to equity.
be equal.
If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then
the net exposed position is called monetary balance.
the change is value of liabilities and assets due to a change in exchange rates will be of equal but opposite direction.
both B and C are true.
none of the above.
If a firm's subsidiary is using the local currency as the functional currency, which of the following is NOT a circumstance that could justify the use of a balance sheet hedge?
The foreign subsidiary is about to be liquidated, so that the value of its Cumulative Translation Adjustment (CTA) would be realized.
The firm has debt covenants or bank agreements that state the firm's debt/equity ratio will be maintained within specific limits.
The foreign subsidiary is operating is a hyperinflationary environment.
All of the above are appropriate reasons to use a balance sheet hedge.
If the parent firm and all subsidiaries denominate all exposed assets and liabilities in the parent's reporting currency this will …….. exposure but each subsidiary would have ………. exposure.
maximize translation; no transaction
eliminate translation; transaction
maximize transaction; no translation
eliminate transaction; translation
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
10% foreign exchange loss on the U.S. dollar accounts receivable.
10% foreign exchange gain on the U.S. dollar accounts receivable.
since the Canadian firm is a U.S. subsidiary neither a gain nor loss will be recorded.
any gain or loss will be recoded only by the parent firm.
It is possible that efforts to decrease translation exposure may result in an increase in transaction exposure.
True
False
………. gains and losses are "realized" whereas ……… gains and losses are only "paper."
Translation; transaction
Transaction; translation
Translation; operating
None of the above
The dominant currency used by a subsidiary in its day-to-day operations is known as its ……… currency.
operational
transactional
functional
foreign
Translation gains and losses can be quite different from operating gains and losses
in magnitude only.
in sign only.
in neither magnitude nor sign.
in both magnitude and sign.
A balance sheet hedge is the main technique for managing ……… .
transaction
operating
translation
money market
Management can easily offset both translation and transaction exposure through
a passive hedging strategy.
an active hedging strategy.
either an active or passive hedging strategy.
It is almost impossible to offset both translation and transaction exposure simultaneously.
U.S. multinational firms must use ……… as their functional currency.
the currency of the primary economic environment where they operate
the U.S. dollar
the local currency
the euro
If the European subsidiary of a U.S. firm has net exposed assets of euro 500,000, and the euro drops in value from $1.40/euro to $1.30/euro the U.S. firm has a translation…….. .
gain of $50,000
loss of $50,000
gain of $450,000
loss of euro 450,000
If the European subsidiary of a U.S. firm has net exposed assets of euro 500,000, and the euro increases in value from $1.30/euro to $1.35/euro the U.S. firm has a translation ………. .
gain of $25,000
loss of $25,000
gain of $525,000
loss of euro 525,000
Under the current rate method, translation gains of losses are reported in an equity reserve account called ………. .
reserve for accounting losses
accounting reserve adjustment account
cumulative translation adjustment account
none of the above; translation gains and losses flow through into the income statement
Under the current rate method, when management anticipates appreciation of a foreign currency it A. may move funds from cash to savings.
may move funds from cash into plant and equipment.
may try to decrease net exposed assets in that country.
may try to increase net exposed assets in that country.
If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound increases in value from euro 1.40/£ to euro 1.45/£, the European firm has a translation………. .
gain of euro 25,000
loss of euro 25,000
gain of £25,000
loss of £25,000
If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound drops in value from euro 1.40/£ to euro 1.30/£, the European firm has a translation……….. .
gain of euro 12,500
loss of euro 12,500
loss of £12,500
gain of £12,500
As required by FASB-52, which exchange rate is required to be used to translate assets and liabilities of a foreign entity from its functional currency to the reporting currency?
forward
current
historical
The exchange rate to be used varies with the situation.
Gains from forward contracts to hedge translation exposure are taxable whereas losses from hedging translation exposure are not.
True
False
Gains from forward contracts to hedge translation exposure are not taxable whereas losses from hedging translation exposure are.
True
False
Multinational enterprises always completely hedge translation exposure.
True
False
When using FASB-52, translated gains and losses due to changes in foreign currency values are usually reported as………… .
gains (losses) due to foreign exchange
net income (loss)
stockholder equity
none of the above
Which of the following firms would NOT bear risk caused by translation exposure?
A U.S based manufacturing firm with a fully owned subsidiary that generates earnings in Japan. The subsidiary always keeps and reinvests the earnings.
A U.S. based retailer with a fully owned subsidiary in Canada that generates losses in Canada that the parent firm occasionally covers.
A U.S. based firm with a subsidiary in Britain that occasionally remits earnings to the parent firm.
All of the above are subject to translation exposure.
If a European subsidiary of a U.S. firm has net exposed liabilities of euro 500,000, and the euro drops in value from $1.40/euro to $1.30/euro then the U.S. firm has a translation……….
gain of $50,000
loss of $50,000
gain of $450,000
loss of euro 450,000
If a European subsidiary of a U.S. firm has net exposed liabilities of euro 500,000, and the euro increases in value from $1.30/euro to $1.35/euro then the U.S. firm has a translation ……….. .
gain of $25,000
loss of $25,000
gain of $525,000
loss of euro 525,000
Using the table below, estimate the net exposure for Souris River Manufacturing of its’ wholling-owned Canadian subsidiary,
Souris River manufacturing (Canada) Balance Sheet December 31 200X
|
Assets |
Liabilities and Equity |
||
|
Cash |
C$10,000 |
Current Liabilities |
C$6,000 |
|
Inventory |
30,000 |
Long – Term Debt |
28,000 |
|
Fixed Assets |
160,000 |
Equity |
166,000 |
|
Total Assets |
C$200,000 |
Total Liabilities and Equity |
C$200,000 |
C$40,000
C$160,000
C$166,000
C$200,000