Indicators pointing towards the local overseas currency as the functional currency include, that the:
I. Parent's cash flows are directly affected on a current basis.
II. Cash flows are primarily in the local currency and do not affect the parent's cash flows.
III. Sales prices are primarily responsive to exchange rate changes in the short-term.
IV. Production costs are determined primarily by local conditions.
A) I and III only;
B) II and IV only;
C) I, III and IV only;
D) I, II and IV only.

Question

Indicators pointing towards the local overseas currency as the functional currency include, that the: 
I. Parent's cash flows are directly affected on a current basis.
II. Cash flows are primarily in the local currency and do not affect the parent's cash flows.
III. Sales prices are primarily responsive to exchange rate changes in the short-term.
IV. Production costs are determined primarily by local conditions.
A) I and III only;
B) II and IV only;
C) I, III and IV only;
D) I, II and IV only.

Quizplus · Accepted Answer

Indicators that the local overseas currency is the functional currency include that cash flows are primarily in the local currency and do not affect the parent's cash flows (II) and that production costs are determined primarily by local conditions (IV). These factors suggest the subsidiary operates independently of the parent company's currency environment.

Indicators Pointing Towards the Local Overseas Currency as the Functional