ECO 410 Week 7 Quiz – Strayer
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Quiz 6 Chapter 11 and 12
Translation Exposure
11.1 Overview of Translation
Multiple Choice
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)
Historical exchange rates may be used for ________, while current exchange
rates may be used for ________.
A) fixed
assets 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
6) If an
imbalance results from the accounting method used for translation, the
imbalance is taken either to ________ or ________.
A) the
bank; the post office
B)
depreciation; the market for foreign exchange swaps
C) current
income; equity reserves
D)
current liabilities; equity reserves
7)
Generally speaking, translation methods by country define the translation
process as a function of what two factors?
A) size;
location
B) a
firm's functional currency; location
C)
location; foreign subsidiary independence
D)
foreign subsidiary independence; a firm's functional currency
8) A/An
________ subsidiary is one in which the firm operates as an extension of the
parent company with cash flows highly interrelated with the parent.
A)
self-sustaining foreign
B)
integrated foreign entity
C)
foreign
D) none
of the above
9)
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 tropical hardwood furniture that it buys
from many different sources. The first subsidiary 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.
A)
domestic; integrated
B)
self-sustaining; domestic
C)
integrated; self-sustaining
D)
self-sustaining; integrated
10) 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
11) The
________ determines accounting policy for U.S. firms.
A)
Securities and Exchange Commission (SEC)
B) Federal
Reserve System (Fed)
C)
Financial Accounting Standards Board (FASB)
D)
General Agreement on Tariffs and Trade (GATT)
True/False
1) It is
possible to use different exchange rates for different line items on a
financial statement.
2) If the
same exchange rate were used to remeasure every line on a financial statement,
then there would be no imbalances from remeasuring.
3) A
foreign subsidiary''s functional currency is the currency of the primary
economic environment in which the subsidiary operates and in which it generates
cash flows.
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