Flow Effect for B/S items?

Anyone else wondering about the solution to this “particular” question? I thought holding effect always refers to B/S items and flow effect to I/S items for individual items, so not talking about the overall exposure when calculating translation G/L, but considering individual items only here.

flow can be from a change in a B/S item though, like adding inventory

exposure is defined for B/S (differently for all-current and temporal) then holding effect = exposure*(EndRate-BegRate) flow effect = (change in exposure)*(EndRate-AveRate)

So, could there be a holding effect for an I/S item?

maratikus, if you haven’t taken the free sample exam yet you probably don’t understand his question. The CFAI asks quesitons on translation on that exam that I had NEVER even seen before.

The CFAI free exam is referring to Income Statement flow effects, which has a different formula than B/S

Haha, thank you for helping me out here, mvt9. Wasn’t sure if I could be that explicit.

LanceTX Wrote: ------------------------------------------------------- > The CFAI free exam is referring to Income > Statement flow effects, which has a different > formula than B/S It was more than that…

I know… that was the general part of it. I agree, I hadn’t seen anything like that before when I took the free exam. Its the formula where you have use the average rate from the previous year and some other stuff… I already forgot it after I told myself I wouldnt… Damn you CFAI

I got killed on those with a practice exam. Went 33% on FSA in that section… For those individual B/S Items they use something other than the flow and holding. They are mentioned in the texts as operational and foreign currency effects. Basically need to know 4 formulas. I completely missed that the 3 times I’ve been through FSA. In addition to the Holding and Flow need to know. Income Statement item * Change in AVERAGE rate & Change in Income Statement item * prior year AVERAGE rate

GMofDen Wrote: ------------------------------------------------------- > > Income Statement item * Change in AVERAGE rate Currency effect. > & > Change in Income Statement item * prior year > AVERAGE rate Operational effect right?

mwvt9 Wrote: ------------------------------------------------------- > maratikus, if you haven’t taken the free sample > exam yet you probably don’t understand his > question. The CFAI asks quesitons on translation > on that exam that I had NEVER even seen before. I understand. However, those are called just as you said exchange rate effect and operational effect.

I understand the logic now. It makes sense, but when that was first throw at me I was clueless. It is kind of sad. I would really like to understand all of this, but I am forced into test taking mode. I guess this is the risk of having to stick with schweser.

Maybe I should add more info. Let’s assume the only thing given is Total Assets, so no info on whether AC or Temporal method should be used, no info on non-monetary or monetary assets, Equity or liabilities. So you don’t know what the exposure is, at least not in the usual sense of “when AC method I use this, when Temporal method I use that”. Let’s also assume this is not a question asking about exchange rate effect or operational effect. How would you now calculate translation gains or losses? Would you focus on holding effect, i.e. Beg. exposure x (EndRate - BegRate) because you examine the B/S? Or flow effect, or both because you know that the total translation G/L is the sum of both, only problem: you only have the information of total assets?

i think this stuff is from L1…or from L2 last year…is there an LOS in the material this year covering this…the operational effect and exchange rate effect…?/ i can’t remember… maybe they forgot to update their exams…!

I was pissed off when I made that stupid error. Had trouble finding it in my notes and then called John Hopkins and he helped me walk it through. I just plain missed it. Sucks. I randomly just started blindly applying holding and flow effect. Page 207 in the CFAI FSA book has a good question that goes over all 4 formulas.

^^ that’s weird Hk… where’d you come across a question like that?!

GMofDen Wrote: ------------------------------------------------------- > I was pissed off when I made that stupid error. > Had trouble finding it in my notes and then called > John Hopkins ??? John Harris ??? :slight_smile:

LOL!

hk Wrote: ------------------------------------------------------- > Maybe I should add more info. > > Let’s assume the only thing given is Total Assets, > so no info on whether AC or Temporal method should > be used, no info on non-monetary or monetary > assets, Equity or liabilities. So you don’t know > what the exposure is, at least not in the usual > sense of “when AC method I use this, when Temporal > method I use that”. > > Let’s also assume this is not a question asking > about exchange rate effect or operational effect. > > How would you now calculate translation gains or > losses? Would you focus on holding effect, i.e. > Beg. exposure x (EndRate - BegRate) because you > examine the B/S? Or flow effect, or both because > you know that the total translation G/L is the sum > of both, only problem: you only have the > information of total assets? The basic idea is this: You were given data for two years. You are tying to figure out how much of the change in the numbers from year to year (in dollars) was due to the actual operations of the subsidiary and how much was just due to currecy fluctuations.