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:

Fibrous

Consisting of or characterized by fibers, often referring to tissue, plants, or materials with a thread-like structure.

Protoderm

The outermost layer of the primary meristem in plant embryos, which develops into the epidermis.

Ground Meristem

A type of plant tissue responsible for producing the ground tissues, including the parenchyma, collenchyma, and sclerenchyma cells.

Epidermis

The outermost layer of skin in mammals, serving as a protective barrier against environmental damage.