Is USD always the local currency and other the foreign currency?
Or, the currency that is translated to get merged into the accounts of parent is the foreign currency? The example given in the Schweser on Pg 135 is causing all the confusion. On Page 140, while analyzing the reason for the differing net income under the two methods, the first point is “income before translation gain/loss is different between the two methods” - This point makes a mention of depreciating local currency! And as can be seen, the exchange rate changes from $0.5 = 1 Loca to $0.4545 = 1 Loca. This shows that the currency depreciating is Loca, Thus, It can be concluded from the above analysis, and the facts that Loca is the local currency Now, come to Pg 143, which makes an analysis of the mixed ratios. Here, the ratios are increasing, and the reason written is "This will always be the case when the foreign currency is depreciating! But in the previous analysis, the local currency was depreciating. How can the different terms (local / foreign) be used for the same depreciating currency? Grateful if someone can throw light! Darn!