After completing this chapter, you will be able to do the following:
- distinguish among presentation (reporting) currency, functional currency, and local currency;
- describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses;
- analyze how changes in exchange rates affect the translated sales of the subsidiary and parent company;
- compare the current rate method and the temporal method, evaluate how each affects the parent company's balance sheet and income statement, and determine which method is appropriate in various scenarios;
- calculate the translation effects and evaluate the translation of a subsidiary's balance sheet and income statement into the parent company's presentation currency;
- analyze how the current rate method and the temporal method affect financial statements and ratios;
- analyze how alternative translation methods for subsidiaries operating in hyperinflationary economies affect financial statements and ratios;
- describe how multinational operations affect a company's effective tax rate;
- explain how changes in the components of sales affect earnings sustainability;
- analyze how currency fluctuations potentially affect financial results, given a company's countries of operation.
According to the World Trade Organization, merchandise exports worldwide were nearly US$15 trillion ...