If a Firm's Subsidiary Is Using the Local Currency as the Functional

question 30

Multiple Choice

If a firm's subsidiary is using the local currency as the functional currency, which of the following is NOT a circumstance that could justify the use of a balance sheet hedge?

• A) The foreign subsidiary is about to be liquidated, so that the value of its Cumulative Translation Adjustment (CTA) would be realized.
• B) The firm has debt covenants or bank agreements that state the firm's debt/equity ratio will be maintained within specific limits.
• C) The foreign subsidiary is operating is a hyperinflationary environment.
• D) All of the above are appropriate reasons to use a balance sheet hedge.

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Definitions:

Intoxicated Person

An individual under the influence of alcohol or drugs to the extent that their mental or physical capabilities are significantly impaired.

Manufacturer's Suggested Retail Price

The amount of money for which the maker of a product recommends that it be sold in retail stores, often used as a standard for pricing, though actual retail prices can vary.

Necessaries

Items or services deemed essential for daily living, such as food, shelter, clothing, and medical care, particularly in contexts involving the provision for those unable to contract for themselves, like minors.

Age of 21

The age at which an individual is considered legally competent to engage in certain contracts and responsibilities in many jurisdictions.