Multinational Operations: What is the balance sheet exposure Temporal Method?

CFA Level II
#1

I know under the current rate: balance sheet exposure = net assets (total assets - total liabilities) But, under the temporal method, is the balance sheet exposure is the net monetary exposure, but I’m not sure what that means. Does it mean: Current assets - total liabilities?

#2

I think it means Monetary Assets - Monetary Liabilities Monetary Assets being cash, accounts receivable… Monetary liabilities being debt, accounts payable… Correct me here if I’m wrong…

#3

I see your POV. Most of the time (in my experience) Current assets = cash + a/r Total liabilities = long term debt + a/p which is basically CA - total liabilities

#4

I just think of it like like this: ANYTHING that’s translated at the CURRENT rate using the temporal method is included in the calculation of the exposure (i.e. all assets and liabilities that are monetary in nature). Under the ALL CURRENT method it’s easy because ALL assets and liabilities are translated at the CURRENT rate so exposure is TOTAL assets - TOTAL liabilities. Again, anyone can feel free to correct if I’m off.

#5

What happened to Inventory as part of CA? Go with Net Monetary Assets (Cash + Marketable Securities+AR) - Net Monetary Liabs (Debt, AP) as the right definition please… CA=(Cash + AR + Marketable Securities+Inv)

#6

sounds good

#7

cpk123 Wrote: ------------------------------------------------------- > What happened to Inventory as part of CA? > > Go with Net Monetary Assets (Cash + Marketable > Securities+AR) - Net Monetary Liabs (Debt, AP) as > the right definition please… > > CA=(Cash + AR + Marketable Securities+Inv) You can also think of Net Monetary Assets as the assets used in the Quick ratio.