国际财务管理课后习题答案chapter 10

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1、CHAPTER10MANAGEMENTOFTRANSLATIONEXPOSURESUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTERQUESTIONSANDPROBLEMSQUESTIONS1.Explainthedifferenceinthetranslationprocessbetweenthemonetary/nonmonetarymethodandthetemporalmethod.Answer:Underthemonetary/nonmonetarymethod,allmonetarybalancesh

2、eetaccountsofaforeignsubsidiaryaretranslatedatthecurrentexchangerate.Otherbalancesheetaccountsaretranslatedatthehistoricalrateexchangerateineffectwhentheaccountwasfirstrecorded.Underthetemporalmethod,monetaryaccountsaretranslatedatthecurrentexchangerate.Otherbalancesheetaccoun

3、tsarealsotranslatedatthecurrentrate,iftheyarecarriedonthebooksatcurrentvalue.Iftheyarecarriedathistoricalvalue,theyaretranslatedattherateineffectonthedatetheitemwasputonthebooks.Sincefixedassetsandinventoryareusuallycarriedathistoricalcosts,thetemporalmethodandthemonetary/nonm

4、onetarymethodwilltypicallyprovidethesametranslation.2.Howaretranslationgainsandlosseshandleddifferentlyaccordingtothecurrentratemethodincomparisontotheotherthreemethods,thatis,thecurrent/noncurrentmethod,themonetary/nonmonetarymethod,andthetemporalmethod?Answer:Underthecurrent

5、ratemethod,translationgainsandlossesarehandledonlyasanadjustmenttonetworththroughanequityaccountnamedthe“cumulativetranslationadjustment”account.Nothingpassesthroughtheincomestatement.Theotherthreetranslationmethodspassforeignexchangegainsorlossesthroughtheincomestatementbefor

6、etheyenterontothebalancesheetthroughtheaccumulatedretainedearningsaccount.IM-183.IdentifysomeinstancesunderFASB52whenaforeignentity’sfunctionalcurrencywouldbethesameastheparentfirm’scurrency.Answer:ThreeexamplesunderFASB52,wheretheforeignentity’sfunctionalcurrencywillbethesame

7、astheparentfirm’scurrency,are:i)theforeignentity’scashflowsdirectlyaffecttheparent’scashflowsandarereadilyavailableforremittancetotheparentfirm;ii)thesalespricesfortheforeignentity’sproductsareresponsiveonashort-termbasistoexchangeratechanges,wheresalespricesaredeterminedthrou

8、ghworldwidecompetition;and,iii)thesalesmarketisprimarilylocat