CFC International Financial Management 4

Question 1

Under the temporal method of foreign currency translation, monetary assets are translated at:

Accepted Answer

The current (closing) exchange rate at the balance sheet date

Answer

Under the temporal method, monetary assets (cash, receivables, debt) are translated at the current rate, while non-monetary assets use historical rates.

Question 2

A European company wants to borrow in US dollars but prefers euro-denominated debt. A US company faces the opposite preference. They agree to a currency swap. What does this arrangement allow each company to achieve?

Accepted Answer

Both companies borrow in their preferred currency while effectively accessing the other currency's market rates

Answer

A currency swap enables each party to borrow in the market where it has a comparative advantage, then swap the proceeds, achieving preferred-currency financing at potentially better rates.

Question 3

The 'J-curve effect' in international economics describes:

Accepted Answer

The tendency for trade deficits to worsen initially before improving after a currency depreciation

Answer

After depreciation, trade volumes are slow to adjust due to existing contracts, so the trade balance worsens initially before improving as exports rise and imports fall.

Question 4

Which transfer pricing method uses gross profit margins of comparable uncontrolled transactions to set intercompany prices?

Accepted Answer

Resale Price method

Answer

The Resale Price method applies the gross profit margin earned by comparable independent distributors to set the intercompany transfer price.

Question 5

A foreign subsidiary's functional currency is the same as the parent's reporting currency. Under ASC 830, which translation method applies?

Accepted Answer

Temporal method

Answer

When a foreign entity's functional currency is the same as the parent's reporting currency, the temporal method (remeasurement) is used under ASC 830.

(CFC) Certified Financial Controller Practice Test

(CFC) Certified Financial Controller Practice Test

CFC International Financial Management 4