Question 1

The direct exchange rate increases as a result of ______________________________.

Accepted Answer

The answer of The direct exchange rate increases as a...

Question 2

A gain in name only is called a(n) ___________________________________ gain.

Accepted Answer

The answer of A gain in name only is called...

Question 3

A gain that is not in name only is called a(n) __________________________________ gain.

Accepted Answer

The answer of A gain that is not in name...

Question 4

Under the current rate method, an increase in the direct exchange rate caused by domestic inflation results in reporting an unrealized ______________________________________________________.

Accepted Answer

The answer of Under the current rate method, an increase...

Question 5

Under the temporal method, a decrease in the direct exchange rate caused by foreign inflation results in reporting an unrealized ____________________________ when fixed assets are financed by nonindexed local currency debt.

Accepted Answer

The answer of Under the temporal method, a decrease in...

Question 6

The temporal method is no more able to produce realistic results when high __________________ inflation is the dominant exchange rate change factor than the current rate method is able to produce reliable results when high _________________ inflation is the dominant exchange rate change factor.

Accepted Answer

The answer of The temporal method is no more able...

Question 7

FAS 52 is based on whether a foreign unit is _______________________________ or __________________________________.

Accepted Answer

The answer of FAS 52 is based on whether a...

Question 8

FAS 8 used a(n) __________________________________________ unit of measure, which was the _______________________________.

Accepted Answer

The answer of FAS 8 used a(n) __________________________________________ unit of...

Question 9

FAS 52 uses ________________________________________ units of measure, which are the _____________________________ and the ________________________________.

Accepted Answer

The answer of FAS 52 uses ________________________________________ units of measure,...

Question 10

Under the temporal method, the "disappearing plant" problem occurs if _________________ inflation exceeds ___________________ inflation.

Accepted Answer

The answer of Under the temporal method, the "disappearing plant"...

Question 11

Under the current rate method, the "disappearing plant" problem occurs if _____________________ inflation exceeds ___________________ inflation.

Accepted Answer

The answer of Under the current rate method, the "disappearing...

Question 12

If foreign inflation exceeds domestic inflation, the direct exchange rate should increase under PPP theory.

Accepted Answer

The answer of If foreign inflation exceeds domestic inflation, the...

Question 13

Under the PPP current-value approach, the focus is on the net asset (net investment) position.

Accepted Answer

The PPP current-value approach focuses on the net asset (net investment) position because it measures the difference between the value of a country's assets and the value of its liabilities. This approach is used to determine whether a country is a net creditor or a net debtor.

Question 14

Under the PPP current-value approach, the relationships that exist in the inflation-adjusted foreign balance sheet are maintained in translation.

Accepted Answer

The PPP current-value approach maintains the relationships in the inflation-adjusted foreign balance sheet by adjusting for inflation, ensuring that the real value of assets and liabilities is preserved during translation.

Question 15

The disappearing plant problem does not occur under the PPP current-value approach.

Accepted Answer

Under the PPP (Purchasing Power Parity) current-value approach, the disappearing plant problem is avoided because it adjusts for changes in the general price levels of the countries involved, thereby maintaining the real value of assets.

Question 16

An increase in the direct exchange rate as a result of domestic inflation results in a realized nominal inflationary holding gain.

Accepted Answer

(it is unrealized)

Question 17

A decrease in the direct exchange rate as a result of foreign inflation results in an unrealized inflationary holding gain to the extent that foreign fixed assets are financed with nonindexed debt.

Accepted Answer

A decrease in the direct exchange rate due to foreign inflation can lead to an unrealized gain on foreign fixed assets financed with nonindexed debt, as the debt's real value decreases while the asset's value remains stable or increases in local currency terms.

Question 18

A nominal gain means an unrealized gain.

Accepted Answer

A nominal gain refers to the increase in the value of an investment or asset before adjusting for factors like inflation, not necessarily whether the gain is realized or unrealized. Unrealized gain means the increase in value has not been cashed in or sold for a profit.

Question 19

A real gain means a realized gain.

Accepted Answer

A real gain refers to an increase in the value of an asset, but it is not necessarily realized. A gain is realized when the asset is actually sold or exchanged at a price higher than its original cost.

Question 20

Inflationary holding gains can be either nominal or real.

Accepted Answer

Inflationary holding gains refer to the increase in the nominal value of assets due to inflation. These gains can be nominal, reflecting the increase in price levels without a real increase in purchasing power, or real, if the asset's value increases more than the general level of inflation, thus increasing the owner's purchasing power.

Quiz 16: Translating Foreign Currency Statements: The Temporal Method and the Functional Currency Concept