Which of the following statements is correct?
A) If a foreign currency weakens with respect to the Canadian dollar, both foreign operations with a functional currency that is the Canadian dollar and not the Canadian dollar, will show a foreign exchange gain.
B) If a foreign currency weakens with respect to the Canadian dollar, both foreign operations with a functional currency that is the Canadian dollar and not the Canadian dollar, will show a foreign exchange loss.
C) If a foreign currency weakens with respect to the Canadian dollar, a foreign operation with a functional currency that is not the Canadian dollar will show a foreign exchange gain while a foreign operation with a functional currency that is the Canadian dollar will show a foreign exchange loss.
D) If a foreign currency weakens with respect to the Canadian dollar, a foreign operation with a functional currency that is not the Canadian dollar will show a foreign exchange loss while a foreign operation with a functional currency that is the Canadian dollar will show a foreign exchange gain.

Question

Quizplus · Accepted Answer

When a foreign currency weakens against the Canadian dollar, a foreign operation with a functional currency that is not the Canadian dollar will incur a foreign exchange loss due to the decreased value of foreign currency-denominated assets when converted back to Canadian dollars. Conversely, a foreign operation with a functional currency that is the Canadian dollar will show a foreign exchange gain because its foreign currency-denominated expenses or liabilities will decrease in value when converted to Canadian dollars.

Which of the Following Statements Is Correct