This should be A 100%
A? segments i’m thinking the magic # is 10%.
Problem 3 the answer is A. Good job all. Heltzel is wrong because flow effect equals the change in exposure multiplied by the ending minus the average exchange rate. If the local currency is appreciating, the ending rate will be more than the average rate. The negative change in exposure multiplied by the positive exchange rate difference will result in a negative flow effect. Banni, as to your question, YES the net assets (or exposure as you say)as defined in this example is assets minus liabilities. So that number is given to you for 2005 and you have to calculate the equivalent for 2006. Then you net the 2 numbers and multiply by the difference in the exchange rates to get the FLOW EFFECT. And you use the old 2005 number (X the difference in exchange and average) for the HOLDING EFFECT. Niblita I am going with A too by elimination. But I was a little leary and looked up the section in the book (page 48.) The 3rd requirement is to report “Sales to unaffiliated customers and intersegment sales” Sorry if I am confusing everyone, but it doesn’t say anything there about a 10% rule. Where is that part? bannisja Wrote: ------------------------------------------------------- > i’d think both effects negative so that’s A? > back to the middle one- for all current isn’t net > exposure assets - liabilities or shareholder’s > equity. how do we know that the beginning > exposure = that “net assets” 714 number? is “net > assets” assets - liabilities? just not familiar > with it called that if yes. > this is a great problem- these are the dumb ones i > mess up all of the time. stupid holding/flow > effects. grrr.
Dwight Wrote: ------------------------------------------------------- > Sorry if I am confusing everyone, but it doesn’t > say anything there about a 10% rule. Where is > that part? It is in schweser in the segment part…I remember that one. Not sure about CFAI.
A it is and banni is right about the 10% number.
I’m on a currency conversion kick. Threw in some subsidiary action to spice it up. Went with the 3 answer format to get us ready for Level 3 exam PM next year 
Question #5 Dave Iverson, CFA, is analyzing the recently released financial statement of Global Corp., a large multinational manufacturing company with production facilities across Europe and Southeast Asia. The company’s choice of functional currency is not disclosed, but Iverson does notice that Global Corp. does not have any cumulative translation adjustments (CTA) on its balance sheet. Which of the following statements is most accurate based upon Iverson’s observation? A) The all-current method of foreign currency translation is used exclusively. B) The temporal method of foreign currency translation is used for at least some of its subsidiaries. C) The parent currency must be the functional currency for all of the company’s subsidiaries.
Current method creates a CTA account on the balance sheet. Since it does not have any CTA, that leaves C as the only answer that is MOST accurate. Parent currency as the functional currency you use the Temporal Method for all subsidiaries.
C for this 100% Temporal method used for ALL subsidiaries across Europe and Southeast Asia. Meaning FC = LC. B would have been good if we change the sentence this way “The temporal method of foreign currency translation is used for ALL of its subsidiaries.”
c for me too
C. Temporal method used exclusively. Thanks for good questions.
You guys nailed it. C is the answer indeed.
want more? A U.S. firm owns a foreign subsidiary in France. In 2002, sales were EUR 1,000,000 and the USD/EUR exchange rate was 1.0620. In 2003, sales were EUR 1,100,000 and the exchange rate was 1.1417. What is the impact of the change in the value of the USD on the parent company’s translated sales? Sales will: A) increase by 18.25%. B) decrease by 7.5%. C) decline by 18.25%. D) increase by 7.5%
90% of the time for some reason I pick the wrong numbers to get the percentage change (there are two versions for this question). I think it qualifies me for being handicapped. (1.1417/1.0620) - 1 = increase 7.5%
Here is another thrown up: On January 9, 2006, Company X purchased $1,000,000 of government bonds and 100,000 shares of stock in Company S for $2,000,000. They are the first marketable securities purchased in the company’s history. The company intends on holding the stock for the foreseeable future and holding the bonds to maturity. As of December 31, the bonds were valued at $900,000, and the stocks were valued at $2,200,000. The bonds paid $50,000 of interest and the stocks paid $20,000 of dividends. In 2006, Company S had earnings per share of $0.90. The marketable securities balance amount shown on the balance sheet is: A) $3,200,000. B) $3,000,000. C) $3,100,000. D) $3,070,000. The impact of the marketable securities on net income is: A) $70,000. B) $270,000. C) $140,000. D) $170,000.
They are HTM securities. BS -> carry them at cost [Bond = 1m] + [Stock = 2m] ==== [Total = 3m] IS ----> Int + Div = 20K + 50K =70K Answers = B and A ???
A and A on yours. the avail for sale you hold mkt value, the HTM you do at cost so 3.2 mil AFS and HTM stocks you just run divs/interest and realized through the I/S- so just the 70k, not the unrealized for the stock.
Niblita75 Wrote: ------------------------------------------------------- > 90% of the time for some reason I pick the wrong > numbers to get the percentage change (there are > two versions for this question). I think it > qualifies me for being handicapped. > > (1.1417/1.0620) - 1 = increase 7.5% Nib - Why am I doing i this way? please correct me… EUR1,000,000*1.0620 USD/EUR = 1062000 USD EUR 1,100,000 *1.1417 USD/EUR = 1255870 USD change = 0.18255= A?
dinesh- stocks can’t be HTM- just debt securities. stick that in your brain now.
I say A on banni’s
1,000,000.00 / 1.062 $941,619.59 1,100,000.00 / 1.062 $1,035,781.54 1,100,000.00 / 1.147 $963,475.52 1,035,781.54 / 963,475 = 107.5%