Multinational Operations

Question 1

What is exposure to Foreign Exchange Risk or Transaction Exposure?

Answer 1

the value of the foreign currency might change relative to the Local currency .

Question 2

If I have a net asset balance sheet exposure and the foreign currency strengthens

Answer 2

I have a positive adjustment

Question 3

If I have a net asset balance sheet exposure and the foreign currency weakens

Answer 3

I have a negative adjustment

Question 4

If I have a net liability balance sheet exposure and the foreign currency strengthens

Answer 4

I have a negative adjustment

Question 5

If I have a net liability balance sheet exposure and the foreign currency strengthens

Answer 5

I have a positive adjustment

Question 6

What kind of balance sheet exposure do we have if we use current rate?

Answer 6

Typically net asset balance sheet exposure

Question 7

If functional currency is same as parent which method do we use?

Answer 7

Temporal method

Question 8

If functional currency is different as parent which method do we use?

Answer 8

Current rate method

Question 9

Foreign currency = functional currency

Answer 9

Current rate method

Question 10

presentation currency = Functional currency

Answer 10

Temporal method

Question 11

What is the process of translation using current rate.

Answer 11

1. identify the functional currency.
2. Translate for currency on functional statement into functional currency.
3. use current spot rate to translate for functional currency balance to parent presentation currency.

Question 12

By definition, for accounting purposes, a foreign currency is any currency other than a company’s …

Answer 12

Functional currency

Question 13

Functional currency

Answer 13

Determine by management. It is the currency of the primary economic enviorment in which an entity operates in.

The currency in which the entity primarily generates and expends cash.

Question 14

Presentation currency

Answer 14

The currency in which parent company prepare its financial reports

Question 14

How is forex loss presented in the financial statement?

If we have 190kr loss

Answer 14

190 kr loss in Equity - Retained earnings
and forex loss under income statement

Question 15

Formula for Foreign exchange G/L within the balance sheet date/period

Answer 15

Quaitity foreign currency x (new - old)

Question 16

Explain the current rate method

Answer 16

All asset and liabilities are translated on balance sheet date at the current spot rate

Question 17

Explain the Temporal rate method

Answer 17

Only monetary assets and liabilities are translated at the current exchange rate. The rest is translated using historical rates.
This variation of the monetary/non-monetary method sometimes is referred to as the temporal method

Question 18

If the Foreign entity fucntional currency is the same as parent

Answer 18

temporal rate method is used

Question 19

If the Foreign entity fucntional currency is the different than the parent

Answer 19

Current rate method is used with the translation adjustment reported as a seperate component of shareholders equity

Question 20

When the foreign currency increases in value, application of the current rate method results i an

Answer 20

Decrease in the negative cumulative translation adjustment reflected in stockholders equity (It becomes less negative)

When the forign currency increases in value, application of the current rate method results in an increase in the postitive cummlative translation adjustment (or a decrease in the negative cumulative translation adjustment).

Question 21

When the forign currency decreases in value, applicatio of the current rate method results in an …

Answer 21

Increase in the negative cumulative translation adjustment in stockholders equity

When the foreign currency decreases in value, the current rate method results in a decrease in the positive cumulative adjustment in stockholders equity

Question 22

If presentation currency is the same as functional currency

Answer 22

Only asset/liability at current values are exposed.

Question 23

How to translate currency in hyperinflationary enviorment according to IFRS

Answer 23

First restate for changes in local general price level, then translate it at current rate.

Inflation rate = 25%

1,000 ————————— 1,250 x Current Rate

Question 24

How to translate currency in hyperinflationary enviorment according to GAAP

Answer 24

Use temporal method