The U.S. dollar has been steadily strengthening with respect to the Canadian dollar. A U.S. parent has a subsidiary in Canada. Which statement is most likely to be true concerning the subsidiary's leverage, calculated as ending total liabilities divided by ending total assets?
(Use T to represent translated leverage, R to represent remeasured leverage, and L to represent leverage calculated using local currency balances.)

Question

Quizplus · Accepted Answer

When the U.S. dollar strengthens, the translated value of Canadian assets and liabilities decreases. However, since liabilities are typically monetary and assets can be non-monetary, the remeasured leverage (R) is usually lower than the translated leverage (T), which equals the local leverage (L) when using the current rate method.

The US Dollar Has Been Steadily Strengthening with Respect to the the Canadian