The Impact of Financing in Determining the Functional Currency

question 17

Multiple Choice

The impact of financing in determining the functional currency

• A)financing does not impact the choice of functional currency due to the integrated nature of capital markets.
• B)if the financing of the foreign entity is primarily denominated in the foreign currency and the debt service obligations are normally handled by the foreign entity, the functional currency is the foreign currency.
• C)if the financing of the foreign entity is primarily from the parent, with debt service obligations are normally handled by the parent, the functional currency is the home currency.
• D)both b and c

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Definitions:

Term Structure

The relationship between interest rates (or yields) and different maturities of debt securities, often depicted as a curve.

U.S. Treasuries

Debt securities issued by the U.S. Department of Treasury used to finance government spending as an alternative to taxation.

Interest Rates

Interest rates are the cost of borrowing money or the return for saving and depositing money, typically expressed as a percentage.

Zero-Coupon Bonds

Bonds that do not pay periodic interest payments but are issued at a substantial discount to their face value, maturing at par.