If the Functional Currency Is the Local Currency of a Foreign

question 30

Multiple Choice

If the functional currency is the local currency of a foreign subsidiary, what exchange rates should be used to translate the items below, assuming the foreign subsidiary is in a country which has not experienced hyperinflation over three years?

• A) Option A
• B) Option B
• C) Option C
• D) Option D

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Definitions:

Operating Leverage

A measure of how revenue growth translates into growth in operational income, highlighting the impact of fixed costs on profits.

Variable Costs

Variable Costs are expenses that vary directly with the level of production or business activity.

Sensitivity Analysis

A technique used to determine how different values of an independent variable affect a particular dependent variable under a given set of assumptions.

Break-even Point

The financial point at which total costs equal total revenue, meaning that the business is neither making a profit nor a loss.