A U.S. firm owns 100% of a Japanese automobile manufacturer. The cost of automobile parts is typically 75% of the firm's total product. In which of the following circumstances would neither the U.S. dollar nor the Japanese yen be considered the functional currency?

Question

Quizplus · Accepted Answer

In this scenario, the Japanese firm is buying German automobile parts with marks and then selling the cars produced in Latin America for marks. Therefore, neither the U.S. dollar nor the Japanese yen is the functional currency. The functional currency is the mark because it is the currency in which the majority of the firm's transactions are denominated. Option A and B both involve the use of dollars, which could potentially make the U.S. dollar the functional currency. Option D is not applicable to this scenario as it is about a rule rather than an actual circumstance.

A US Firm Owns 100% of a Japanese Automobile Manufacturer