When the functional currency is the foreign entity's currency:
A)exchange rate changes do not affect the economic well-being of the parent
B)the subsidiary operates as an entity, independent of the parent
C)exchange rate changes do not have immediate impact on the cash flows of the parent
D)All of the above are correct

Question

When the functional currency is the foreign entity's currency:
A)​exchange rate changes do not affect the economic well-being of the parent
B)​the subsidiary operates as an entity, independent of the parent
C)​exchange rate changes do not have immediate impact on the cash flows of the parent
D)​All of the above are correct

Quizplus · Accepted Answer

When the functional currency is the foreign entity's currency, exchange rate changes do not affect the economic well-being of the parent as the subsidiary is responsible for its own financial results. Additionally, the subsidiary operates as an entity independent of the parent, and exchange rate changes do not have an immediate impact on the cash flows of the parent as the subsidiary's financial results are translated at the current rate at the end of each accounting period. Therefore, all choices are correct.

When the Functional Currency Is the Foreign Entity's Currency