In Cases of Operations Located in Highly Inflationary Economies

question 37

Multiple Choice

In cases of operations located in highly inflationary economies:

• A) The reporting currency of the U.S. parent-the U.S. dollar-should be used as the foreign entity's functional currency.
• B) The foreign currency should be used as the functional currency with a footnote to the financials displaying what the earnings would have been using the U.S. dollar as the functional currency.
• C) The foreign currency should be used as the functional currency with a single line item-foreign translation-reporting the adjustment using the U.S. dollar as the functional currency.
• D) None of the above.

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Definitions:

Price

Price refers to the amount of money expected, required, or given in payment for something, representing the value exchange between buyer and seller in a market.

Kinked Demand

A demand curve that has a distinct bend or "kink" at a certain price level, reflecting different elasticity above and below that price.

Marginal Cost

The increase in cost resulting from the production of an extra unit of a good or service.

Output Level

The total amount of goods or services produced by a business or economy during a specific period.