# Temperal method of currency translation.

For Schweser book 6 exam 1 morning session question 16. I can figure out everything except the part about the flow effect of currency changes. The only change is that ending balance of long term debt is 67700 less than the beginning, following the formula: flow effect = changes in the exposure * (ending rate - average rate) = -67700 * -0.03 so this part should be a positive number. For some reason that I can never figure out, Schweser’s answer shows this number as a negative number. I am really, really confused for this part. If anybody can give me some idea that will be great!

Was the currency quoted direct or indirect?

I remember it is a U.S. subsidiary of a Canada company. The rate is 1.3x Canada dollar / U.S. dollar. I do not think how the rate is rated matters. The key is how to treat the changes in long-term debt.

It does matter: (1/1.3-1/1.2) <> (1.3-1.2), and in fact has an opposite sign. But your error is that the change in exposure is +67700. Decrease in debt => increase in currency exposure. PLEASE POST THE ENTIRE QUESTION NOT BITS OF IT!

i see. you are correct. thanks a lot. i do not have an electronic copy of the exam, so it is not easy to type all the info.

Well it’s a pain in the bum trying to answer the question without the requisite info. This is a study group, not a tutor group.