Week
8 Assignment 2 Submission
Assignment 2: Report for Management – Foreign Currency
Risk
Due Week 8 and worth 240 points
XYZ, Inc. is a U.S.-based company in the process of
acquiring a subsidiary in a country whose functional currency is not the U.S. dollar.
Use the report template, located in the online course shell, to create a report
for management that details the risks involved in operating a subsidiary in a
functional currency with the U.S. dollar as the reporting currency.
Note: You may create and / or make all necessary
assumptions needed for the completion of this assignment.
Write a four to five (4-5) page report in which you:
1. Specify the potential foreign subsidiaryΓ’ΒΒs business
operation, the functional currency used, and the type of intercompany
transactions anticipated between the acquiring company and the potential
subsidiary. Describe the two (2) major financial statement translation methods
currently used in US GAAP (i.e., the current rate method and the temporal
method). Determine the major procedural differences inherent in applying each
method. Analyze the fundamental manner in which balance sheet exposure differs
under the two (2) methods in question.
2. Compare and contrast the effects on income that result
from the use of both the current rate method and the temporal method to
translate cost of goods sold. Determine the key inherent risks and discuss the
related impact on the investors from the use of each method in question.
3. Suggest one (1) strategy for determining and disclosing a
translation adjustment when parent company management has translated the
financial statements of a foreign subsidiary into its reporting currency.
Determine the main steps that you would take in order to determine a
translation adjustment, and indicate the places within the financial statements
where you would report the amount of the translation adjustment in question.
4. Recommend one (1) way by which to translate the
subsidiaryΓ’ΒΒs financial statements. Include consideration of the foreign
exchange risk within your recommendation. Provide a rationale for your
response.
5. Use at least two (2) quality academic resources in this
assignment. Note: Wikipedia and other Websites do not qualify as
academic resources.
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