I came across the following question that to me implies that the term ‘functional currency’ can refer to the parent or the subsidiary(ies). I somehow thought that there was only one functional currency in any one example and it would apply to the entire company. The answer below, A, I guess implicitly refers to the functional currency of the subsidiary. Since this functional currency (or LC) does not equal USD, then we have the current rate method. Likewise, answer C seems to imply the same, i.e. functional currency does not equal USD so that current rate method is required. Can anyone weigh in as to what I could be misunderstanding? Which of the following is least likely a condition that requires the use of the temporal method for a U.S. parent that reports results in U.S. dollars? A. T he functional currency is the local currency. B. T he foreign subsidiary is operating in a highly inflationary economy. C. T he functional currency is some currency other than the local currency or the U.S. dollar. Ans: A, If the functional currency is the local currency, then the functional currency and the parent’s presentation currency are different. In this case, the current rate method is used.
yeah the wording is a little tricky but do you understand the point?