國(guó)際財(cái)務(wù)管理課后習(xí)題答案chater

1、CHAPTER10MANAGEMENTOFTRANSLATIONEXPOSURE SUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTER QUESTIONSANDPROBLEMS QUESTIONS 1.Explainthedifferenceinthetranslationprocessbetweenthemonetary/nonmonetarymethodand thetemporalmethod. 2.Howaretranslationgainsandlosseshandleddifferentlyaccordingtothecurrentratemet

2、hodin comparisontotheotherthreemethods,thatis,thecurrent/noncurrentmethod,themonetary/nonm onetarymethod,andthetemporalmethod 3.IdentifysomeinstancesunderFASB52whenaforeignentitysfunctionalcurrencywouldbethes ameastheparentfirm scurrency.Answer:ThreeexamplesunderFASB52,wheretheforeignentitysfunction

3、alcurrencywillbethes ameastheparentfirm scurrency,are:itheforeignentityscashflowsdirectlyaffectthepar ent scashflowsandarereadilyava ilableforremittancetotheparentfirm;iithesalespricesfsproductsareresponsiveonashort-ortheforeignentity termbasistoexchangeratechanges,wheresalespricesaredeterminedthrou

4、ghworldwidecompetition;and,iiithesalesmarketisprimarilylocatedintheparentscountryorsalescontractsaredenominatedintheparentscurrency.4.DescribetheremeasurementandtranslationprocessunderFASB52ofawhollyownedaffiliatetha tkeepsitsbooksinthelocalcurrencyofthecountryinwhichitoperates,whichisdifferentthani

5、t sfunctionalcurrency. Answer:Foraforeignentitythatkeepsitsbooksinitslocalcurrency,whichisdifferentfromitsf unctionalcurrency,thetranslationprocessaccordingtoFASB52isto:first,remeasurethefinan cialreportsfromthelocalcurrencyintothefunctionalcurrencyusingthetemporalmethodoftran slation,andsecond,tran

6、slatefromthefunctionalcurrencyintothereportingcurrencyusingthe currentratemethodoftranslation. 5.Itis,generally,notpossibletocompletelyeliminatebothtranslationexposureandtransacti onexposure.Insomecases,theeliminationofoneexposurewillalsoeliminatetheother.Butinoth ercases,theeliminationofoneexposure

7、actuallycreatestheother.Discusswhichexposuremight beviewedasthemostimportanttoeffectivelymanage,ifaconflictbetweencontrollingbotharise s.Also,discussandcritiquethecommonmethodsforcontrollingtranslationexposure. Answer:Sinceitis,generally,notpossibletocompletelyeliminatebothtransactionandtransla tion

8、exposure,werecommendthattransactionexposurebegivenfirstprioritysinceitinvolvesrealcashflows.Thetranslationprocess,on-the-otherhand,hasnodirecteffectonreportingcurrencycashflows,andwillonlyhavearealizableef fectonnetinvestmentuponthesaleorliquidationoftheassets. PROBLEMS Centraliaanditsaffiliatescarr

9、yinventoryandfixedassetsonthebooksathistoricalvalues. ReportingCurrencyImbalance= - . 3,949,0000- - . 3,949,0000 .1.1000 / $1.00= $239,415.1.1786 / $1.00TranslationExposureReportunderFASB8forCentraliaCorporationanditsMexicanandSpanishAffiliates,December 31, 2022in000CurrencyUnits Canadian Mexican Eu

10、ro Swiss Dollar Peso Franc AssetsCash CD200 Ps6,000 .825SF0 Accountsreceivable 0 9,000 1,045 0 Inventory 0 0 0 0 Netfixedassets 0 0 0 0 Exposedassets CD200 Ps15,000 .1,870SF0 LiabilitiesAccountspayable CD0 Ps7,000 .1,364SF0 Notespayable 0 17,000 935 1,400 Long-termdebt 0 27,000 3,520 0 Exposedliabil

11、ities CD0 Ps51,000 .5,819SF1,400 Netexposure CD200 Ps36,000 .3,949SF1,400 Centraliaanditsaffiliatescarryinventoryandfixedassetsonthebooksathistoricalvalues. ConsolidatedBalanceSheetunderFASB8forCentraliaCorporationanditsMexicanandSpanishAffi liates,December 31, 2022:Post-ExchangeRateChangein000Dolla

12、rs CentraliaCorp. Mexican Spanish Consolidatedparent Affiliate Affiliate BalanceSheet AssetsCash a $950b$600 $700 $2,250 Accountsreceivable 1,450900 887 3,237 Inventory 3,000 1,500 1,500 6,000 InvestmentinMexicanaffili-c- - - ate -d- - - InvestmentinSpanishaffiliate Netfixedassets 9,000 4,600 4,000

13、17,600 Totalassets $29,087 LiabilitiesandNetWorthAccountspayable $1,800 b $700$1,157 $3,657 Notespayable 2,200 1,700 1,043e4,943 Long-termdebt 7,110 2,700 2,987 12,797 Commonstock 3,500 -c-d3,500 Retainedearnings 4,190 -c-d4,190 Totalliabilitiesandnetwor$29,087 th aThisincludesCD200,000theparentfirm

14、hasinaCanadianbank,carriedas$150,000.CD200,000/CD 1.3333/$1.00=$150,000. b$1,750,000-$300,000=Ps3,000,000/Ps10.00/$1.00intracompanyloan=$1,450,000. c,d Investmentinaffiliatescancelswiththenetworthoftheaffiliatesintheconsolidation. eTheSpanishaffiliateowesaSwissbankSF375,000 SF1.2727/.1.00=.294,649.T

15、hisiscarrie donthebooks, aftertheexchangeratechange,aspartof.1,229,649=.294,649+.935,000.1,229,649/.1. 1786/$1.00=$1,043,313. 3.InExample10.2,aforwardcontractwasusedtoestablishaderivatives ralia “ hedge” toprotectCentMINICASE:SUNDANCESPORTINGGOODS,INC. SundanceSportingGoods,Inc.,isaU.S.manufacturero

16、fhigh-qualitysportinggoods-principallygolf,tennisandotherracquetequipment,andalsolawnsports,suchascroquetandbad minton-withadministrativeofficesandmanufacturingfacilitiesinChicago, Illinois.Sundancehastwowhollyownedmanufacturingaffiliates,oneinMexicoandtheotherinCanada.TheMexicanaffiliateislocatedin

17、Mexico CityandservicesallofLatin America.TheCanadianaffiliateisinTorontoandservesonlyCanada.Eachaffiliatekeepsitsbook sinitslocalcurrency,whichisalsothefunctionalcurrencyfortheaffiliate.Thecurrentexchan geratesare:$1.00=CD1.25=Ps3.30=A1.00=￥ 105=W800.ThenonconsolidatedbalancesheetsforSundanceanditst

18、woaffiliatesappearinthea ccompanyingtable. NonconsolidatedBalanceSheetforSundanceSportingGoods,Inc.andItsMexicanandCanadianAffiliates,December 31, 2022in000CurrencyUnits Sundance,Inc. Mexican Canadian parent Affiliate Affiliate AssetsCash $1,500 Ps1,420 CD1,200 Accountsreceivable 2,500a2,800e1,500fI

19、nventory 5,000 6,200 2,500 InvestmentinMexicanaffili2,400b- - ate InvestmentinCanadianaffil3,600c- - iate Netfixedassets 12,000 11,200 5,600 Totalassets $27,000 Ps21,620 CD10,800 LiabilitiesandNetWorthAccountspayable $3,000 Ps2,500aCD1,700 Notespayable 4,000d4,200 2,300 Long-termdebt 9,000 7,000 2,3

20、00 Commonstock 5,000 4,500b2,900cRetainedearnings 6,000 3,420b1,600cTotalliabilitiesandnetwor$27,000 Ps21,620 CD10,800 th accountsreceivablepayableisdenominatedindollarspesos. bTheMexicanaffiliateiswhollyownedbytheparentfirm.Itiscarriedontheparentfirmsbooksat$2,400,000.Thisrepresentsthesumofthecommo

21、nstockPs4,500,000andretainedearningsPs3,420,000ontheMexicanaffiliatesbooks,translatedatPs3.30/$1.00.cTheCanadianaffiliateiswho llyownedbytheparentfirm.Itiscarriedontheparentfirmsbooksat$3,600,000.ThisrepresentsthesumofthecommonstockCD2,900,000andtheretainedearningsCD1,600,000ontheCanadianaffiliatesb

22、ooks,translatedatCD1.25/$1.00.defa.UsingthecurrentexchangeratesandthenonconsolidatedbalancesheetsforSundanceanditsaffiliates,prepareaconsolidatedbalancesheetfortheMNCaccordingtoFASB52. ii.Usingthetranslationexposurereportyouhaveprepared,determineifanyreportingcurrencyimbalancewillresultfromachangein

23、exchangeratestowhichthefirmhascurrencyexposure.Yourforecastisthatexchangerateswillchangefrom$1.00=CD1.25=Ps3.30=A1.00=￥105=W800to$1.00=CD1.30=Ps3.30=A1.03= ￥105=W800. SuggestedSolutiontoSundanceSportingGoods,Inc. ConsolidatedBalanceSheetforSundanceSportingGoods,Inc.itsMexicanandCanadianAffiliates, D

24、ecember 31, 2022:Pre-ExchangeRateChangein000Dollars Sundance,Inc. Mexican Canadian Consolidated parent Affiliate Affiliate BalanceSheet AssetsCash $1,500 $430 $960 f$2,890 Accountsreceivable 2,100ae 8491,2004,149 Inventory 5,000 1,879 2,000 8,879 InvestmentinMexicanaff-b- - - iliate -c- - - Investme

25、ntinCanadianaffiliate Netfixedassets 12,000 3,394 4,480 19,874 Totalassets $35,792 LiabilitiesandNetWorthAccountspayable $3,000 a $358$1,360 $4,718 Notespayable 4,000d1,273 1,840 7,113 Long-termdebt 9,000 2,121 1,840 12,961 Commonstock 5,000 -b-c5,000 Retainedearnings 6,000 -b-c6,000 Totalliabilitie

26、sandnet$35,792 worth a$2,500,000-$400,000=Ps1,320,000/Ps3.30/$1.00intracompanyloan=$2,100,000. b,c Theinvestmentintheaffiliatescancelswiththenetworthoftheaffiliatesintheconsolidation. dTheparentowesaJapanesebank￥126,000,000.Thisiscarriedonthebooksas$1,200,000=￥126,000,000/￥105/$1.00. eTheMexicanaffi

27、liatehassoldonaccountA120,000ofmerchandisetoanArgentineimporthouse.Thi siscarriedontheMexicanaffiliatesbooksasPs396,000=A120,000 xPs3.30/A1.00.fTheCanadianaffiliatehassoldonaccountW192,000,000ofmerchandisetoaKoreanimporter.Thisi scarriedonth eCanadianaffiliatesbooksasCD300,000=W192,000,000/W800/CD1.

28、25.TranslationExposureReportforSundanceSportingGoods,Inc.anditsMexicanandCanadianAffiliates,December 31, 2022in000CurrencyUnits Japanese Mexican Canadian ArgentinKorean Yen Peso Dollar e Won Austral AssetsCash ￥0 Ps1,420 CD1,200 A0 W0 Accountsreceivable 0 2,404 1,200 120 192,000 Inventory 0 6,200 2,

29、500 0 0 Fixedassets 0 11,200 5,600 0 0 Exposedassets ￥0 Ps21,224 CD10,500 A120 W192,000 LiabilitiesAccountspayable ￥0 Ps1,180 CD1,700 A0 W0 Notespayable 126,000 4,200 2,300 0 0 Long-termdebt ￥0 7,000 2,300 0 0 Exposedliabilities ￥126,000 Ps12,380 CD6,300 A0 W0 Netexposure ￥ 126,000 Ps8,844 CD4,200 A

30、120 W192,000 Net Exposure Currency i Net Exposure Currency i-S new i / reporting S old i / reporting =ReportingCurrencyImbalance. FromthetranslationexposurereportwecandeterminethatthedepreciationintheCanadiandollarwillcausea CD4,200,000 CD1.30 / $1.00 -CD4,200,000 CD1.25 / $1.00 = - $129,231 reporti

31、ngcurrencyimbalance. Similarly,thedepreciationintheArgentineaustralwillcausea A120,000 A1.03/ $1.00 -A120,000 A1.00 / $1.00 = -$3,495reportingcurrencyimbalance. Intotal,thedepreciationoftheCanadiandollarandtheArgentineaustralwillcauseareportingcurrencyimbalanceintranslatedvalueequalto-$129,231-$3,49

32、5=-$132,726. ConsolidatedBalanceSheetforSundanceSportingGoods,Inc.itsMexicanandCanadianAffiliates, December 31, 2022:Post-ExchangeRateChangein000Dollars Sundance,Inc. Mexican Canadian Consolidatparent Affiliate Affiliate ed BalanceShe et AssetsCash $1,500 $430 $923 $2,853 Accountsreceivable 2,100a84

33、5e1,163f4,108 Inventory 5,000 1,879 1,923 8,802 InvestmentinMexicanaf-b- - - filiate -c- - - InvestmentinCanadianaffiliate Netfixedassets 12,000 3,394 4,308 19,702 Totalassets $3,000 a $358$1,308 $35,465 LiabilitiesandNetWorth$4,666 Accountspayable Notespayable 4,000d1,273 1,769 7,042 Long-termdebt

34、9,000 2,121 1,769 12,890 Commonstock 5,000 -b-c5,000 Retainedearnings 6,000 -b-c6,000 CTA - - - 133 Totalliabilitiesandne$35,465 tworth a$2,500,000-$400,000=Ps1,320,000/Ps3.30/$1.00intracompanyloan=$2,100,000. b,c Theinvestmentintheaffiliatescancelswiththenetworthoftheaffiliatesintheconsolidation. d

35、TheparentowesaJapanesebank￥126,000,000.Thisiscarriedonthebooksas$1,200,000=￥126,000,000/￥105/$1.00. eTheMexicanaffiliatehassoldonaccountA120,000ofmerchandisetoanArgentineimporthouse.Thi siscarriedontheMexicanaffiliatesbooksasPs384,466=A120,000 xPs3.30/A1.03.fTheCanadianaffiliatehassoldonaccountW192,

36、000,000ofmerchandisetoaKoreanimporter.Thisi . scarriedontheCanadianaffiliatesbooksasCD312,000=W192,000,000/W800/CD1.30 TransactionExposureReportforSundanceSportingGoods,Inc.and itsMexicanandCanadianAffiliates,December 31, 2022 Affiliate Amount Account Translation Exposure Parent Ps1,320,000 Accounts

37、ReceivaNo ble Parent ￥126,000,000 NotesPayable Yes Mexican A120,000 AccountsReceivaYes ble Canadian W192,000,000 AccountsReceivaYes ble Theparentfirmcanpayoffthe￥ 126,000,000loanfromtheJapanesebankusingfundsfromthecashaccountandmoneyfromaccounts receivablethatitwillcollect.Additionally,theparentfirm

38、cancollecttheaccountsreceivabl eofPs1,320,000fromitsMexicanaffiliatethatiscarriedonthebooksas$400,000.Inturn,theMex icanaffiliatecancollecttheA120,000accountsreceivablefromtheArgentineimporter,valueda tPs384,466afterthedepreciationintheaustral,toguardagainstfurtherdepreciationandtouse topartiallypay

39、offthepesoliabilitytotheparent.TheCanadianaffiliatecaneliminateitstransactionexposurebycollectingtheW192,000,000accountsreceivableassoonaspossible,whichis currentlyvaluedatCD312,000. TheeliminationofthesetransactionexposureswillaffectthetranslationexposureofSund anceMNC.Arevisedtranslationexposurereportfoll