If a firm's balance sheet has an equal amount of exposed foreign currency assets and liabilities and the firm translates by the temporal method, then:
A) the net exposed position is called monetary balance.
B) the change is value of liabilities and assets due to a change in exchange rates will be of equal but opposite direction.
C) Both A and B are true.
D) none of the above

Question

Quizplus · Accepted Answer

When a firm has an equal amount of exposed foreign currency assets and liabilities, and it uses the temporal method for translation, both the change in value of liabilities and assets due to a change in exchange rates will be of equal but opposite direction, effectively neutralizing the net impact on the firm's financial position. This concept is not specifically termed "monetary balance" in standard financial terminology related to currency translation, but the explanation provided in option B accurately describes the effect of equal but opposite changes in value for assets and liabilities. Therefore, considering the explanation rather than the specific terminology, both statements can be considered true in the context given.

If a Firm's Balance Sheet Has an Equal Amount of Exposed