Exchange Rates for Purposes of Multinational Capital Budgeting

question 14

Multiple Choice

Exchange rates for purposes of multinational capital budgeting:

• A) are very difficult to forecast.
• B) can be easily hedged with currency swaps.
• C) are unimportant, as they do not affect the cash flows of the multinational project.
• D) all of the above

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Definitions:

Functional Currency

The primary currency of the primary economic environment in which an entity operates, used in its financial reporting.

Cost Of Sales

Direct costs attributable to the production of the goods sold by a company, including materials and labor.

Temporal Method

An accounting technique used to translate the financial statements of a foreign subsidiary to the parent company's currency, using exchange rates that vary with the timing of the original transaction.

Depreciation Expense

An accounting method used to allocate the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.