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:

Nonverbal Communication

The transfer of information through body movements, facial expressions, and other physical gestures without the use of words.

Coded Language

Language that uses words or phrases with hidden meanings known only to a specific group, often to conceal the true message.

Ambiguity

A situation or statement that has more than one possible interpretation or meaning, often leading to confusion or misunderstanding.

Face-To-Face Meeting

A personal encounter or conference between individuals to discuss matters directly.