CHAPTER 15
MULTINATIONAL OPERATIONS
LEARNING OUTCOMES
After completing this chapter, you will be able to do the following:
- Distinguish among presentation currency, functional currency, and local currency.
- Analyze the impact of changes in exchange rates on the translated sales of the subsidiary and parent company.
- Compare and contrast the current rate method and the temporal method, evaluate the effects of each on the parent company’s balance sheet and income statement, and determine which method is appropriate in various scenarios.
- Calculate the translation effects, evaluate the translation of a subsidiary’s balance sheet and income statement into the parent company’s currency, and analyze the different effects of the current rate method and the temporal method on the subsidiary’s financial ratios.
- Analyze the effect on a parent company’s financial ratios of the currency translation method used.
- Analyze the effect of alternative translation methods for subsidiaries operating in hyperinflationary economies.
1. INTRODUCTION
According to the World Trade Organization, merchandise exports worldwide exceeded US$10 trillion in 2005.1 The top five exporting countries, in order, were Germany, the United States, China, Japan, and France. From 2000 to 2005, international trade grew by 62 percent.
The U.S. Department of Commerce identified 239,100 U.S. companies as exporters in 2005. Only 3 percent of those companies were large (more than 500 employees). ...
