国际财务管理课后习题答案chater

1、CHAPTER10MANAGEMENTOFTRANSLATIONEXPOSURESUGGESTEDANSWERSANDSOLUTIONSTOEND-OF-CHAPTERQUESTIONSANDPROBLEMSQUESTIONS1.Explainthedifferenceinthetranslationprocessbetweenthemonetary/nonmonetarymethodand thetemporalmethod.2.Howaretranslationgainsandlosseshandleddifferentlyaccordingtothecurrentratemethodin

2、 comparisontotheotherthreemethods,thatis,thecurrent/noncurrentmethod,themonetary/nonm onetarymethod,andthetemporalmethodameastheparentfirm scurrency.Answer:ThreeexamplesunderFASB52,wheretheforeignentity sfunctionalcurrencywillbethesscashflowsdirectlyaffecttheparameastheparentfirm scurrency,are:i)the

3、foreignentityent scashflowsandarereadilyava ilableforremittancetotheparentfirm;ii)thesalespricesf ortheforeignentity sproductsareresponsiveonashort-termbasistoexchangeratechanges,wheresalespricesaredeterminedthroughworldwidecompetit scountryorsalescontractsareion;and,iii)thesalesmarketisprimarilyloc

4、atedintheparent denominatedintheparent scurrency.4.DescribetheremeasurementandtranslationprocessunderFASB52ofawhollyownedaffiliatetha tkeepsitsbooksinthelocalcurrencyofthecountryinwhichitoperates,whichisdifferentthanit sfunctionalcurrency.Answer:Foraforeignentitythatkeepsitsbooksinitslocalcurrency,w

5、hichisdifferentfromitsf unctionalcurrency,thetranslationprocessaccordingtoFASB52isto:first,remeasurethefinan cialreportsfromthelocalcurrencyintothefunctionalcurrencyusingthetemporalmethodoftran slation,andsecond,translatefromthefunctionalcurrencyintothereportingcurrencyusingthe currentratemethodoftr

6、anslation.5.Itis,generally,notpossibletocompletelyeliminatebothtranslationexposureandtransacti onexposure.Insomecases,theeliminationofoneexposurewillalsoeliminatetheother.Butinoth ercases,theeliminationofoneexposureactuallycreatestheother.Discusswhichexposuremight beviewedasthemostimportanttoeffecti

7、velymanage,ifaconflictbetweencontrollingbotharise s.Also,discussandcritiquethecommonmethodsforcontrollingtranslationexposure. Answer:Sinceitis,generally,notpossibletocompletelyeliminatebothtransactionandtransla tionexposure,werecommendthattransactionexposurebegivenfirstprioritysinceitinvolvesre alca

8、shflows.Thetranslationprocess,on-the- otherhand,hasnodirecteffectonreportingcurrencycashflows,andwillonlyhavearealizableef fectonnetinvestmentuponthesaleorliquidationoftheassets.PROBLEMSCen traliaa nditsaffiliatescarry inven torya ndfixedassets on thebooksathistoricalvalues.Report in gCurre ncylmbal

9、a nce=-? 3,949,000-? 3,949,000=$239,415. ?1.1786/$1.00?1.1000/ $1.00Con solidatedBala nceSheet un derFASB8forCe ntraliaCorporati onan ditsMexica nan dSpa ni shAffiliates,December 31,2005:Post-Excha ngeRateCha nge(i nO OODollars)iliates,December 31,2005(i n0 OOCurre ncyUn its)Can adia nDollarMexica n

10、PesoEuroSwissFrancAssetsCashCD200Ps6,000?825SF0Acco un tsreceivable09,0001,0450Inven tory0000Netfixedassets0000ExposedassetsCD200Ps15,000?1,870SF0LiabilitiesAcco un tspayableCD0Ps7,000?1,364SF0Notespayable017,0009351,400Lon g-termdebt027,0003,5200ExposedliabilitiesCD0Ps51,000?5,819SF1,400Netexposure

11、CD200(Ps36,000)(?3,949)(SF1,400)Cen traliaa nditsaffiliatescarry inven torya ndfixedassets on thebooksathistoricalvalues.Cen traliaCorp.Mexica nSpanish(pare nt)AffiliateAffiliateCon solidatedBala nceSheetAssetsCash$950a$600$700$2,250Acco un tsreceivable1,450 b9008873,237Inven tory3,0001,5001,5006,00

12、0In vestme nti nM exica naffili atecIn vestme nti nSpa ni shaffili atedNetfixedassets9,0004,6004,00017,600Totalassets$29,087Liabilitiesa ndNetWorthAcco un tspayable$1,800$700b$1,157$3,657Notespayable2,2001,7001,043 e4,943Lon g-termdebt7,1102,7002,98712,797Common stock3,500cd3,500Reta in edear nings4

13、,190cd4,190Totalliabilitiesa ndn etwor th$29,087aThis in cludesCD200,000thepare ntfirmhasi naCa nadia nba nk,carriedas$150,000.CD200,000/(CD 1.3333/$1.00)=$150,000.b$1,750,000-$300,000(=Ps3,000,000/(Ps10.00/$1.00)i ntracompa nyloa n=$1,450,000.In vestme nti naffiliatesca ncelswiththe networthoftheaf

14、filiatesi nthecon solidatio n.eTheSpa nishaffiliateowesaSwissba nkSF375,000( SF1.2727/?1.00=?294,649).Thisiscarriedon thebooks,aftertheexcha ngeratecha nge,aspartof?1,229,649=?294,649+?935,000.?1,229,649/(?1.1786/$1.00)=$1,043,313.hedge”toprotectCent3.InExample10.2,aforwardcontractwasusedtoestablish

15、aderivatives raliaMINICASE:SUNDANCESPORTINGGOODS,INC.SundanceSportingGoods,Inc.,isaU.S.manufacturerofhigh-qualitysportinggoods- principallygolf,tennisandotherracquetequipment,andalsolawnsports,suchascroquetandbad minton-withadministrativeofficesandmanufacturingfacilitiesinChicago,Illinois.Sundanceha

16、stwowhollyownedmanufacturingaffiliates,oneinMexicoandtheotherinCa nada.TheMexicanaffiliateislocatedinMexico CityandservicesallofLatin America.TheCanadianaffiliateisinTorontoandservesonlyCanada.Eachaffiliatekeepsitsbook sinitslocalcurrency,whichisalsothefunctionalcurrencyfortheaffiliate.Thecurrentexc

17、han geratesare:$1.00=CD1.25=Ps3.30=A1.00= 105=W800.The noncon solidatedbala ncesheetsforS undancean ditstwoaffiliatesappeari nthea ccompanyingtable.Noncon solidatedBala nceSheetforS undan ceSporti ngGoods,l nc.an dltsMexica nan dCa nadia nAffiliates,December 31,2005(i nOOOCurre ncyUn its)Sundan ce,I

18、 nc.Mexica nCan adia n(pare nt)AffiliateAffiliateAssetsCash$1,500Ps1,420CD1,200Acco un tsreceivable2,500a2,800 e1,500 fInven tory5,0006,2002,500In vestme nti nM exica naffili ate2,400In vestme nti nCan adia naffil iate3,600c-Netfixedassets12,00011,2005,600Totalassets$27,000Ps21,620CD10,800Liabilitie

19、sa ndNetWorthAcco un tspayable$3,000Ps2,500aCD1,700Notespayable4,000d4,2002,300Lon g-termdebt9,0007,0002,300Common stock5,0004,500 b2,900 cReta in edear nings6,0003,420 b1,600 cTotalliabilitiesa ndn etwor th$27,000Ps21,620CD10,800acco un tsreceivable(payable)isde nomin atedi ndollars(pesos).bTheMexi

20、canaffiliateiswhollyownedbytheparentfirm.Itiscarriedontheparentfirm sbooksat$2,400,000.Thisreprese ntsthesumofthecommo nstock(Ps4,500,000)a ndretai nedear nin gs(Ps3, 420,000)ontheMexicanaffiliate sbooks,translatedatPs3.30/$1.00.cTheCanadianaffiliateiswhollyownedbytheparentfirm.ltiscarriedontheparen

21、tfirm sbooksat$3,600,000.Thisreprese ntsthesumofthecom mon stock(CD2,900,000)a ndtheretai nedearni ngs( CD1,600,000)ontheCanadianaffiliate sbooks,translatedatCD1.25/$1.00.defa.Usi ngthecurre ntexcha ngeratesa ndthe noncon solidatedbala ncesheetsforS undancean ditsaffiliates,prepareac on solidatedbal

22、a ncesheetfortheMNCaccord in gtoFASB52.ii.Usi ngthetra nslatio nexposurereportyouhaveprepared,determi neifa nyreporti ngcurre ncyimbala ncewillresultfromacha ngein excha ngeratestowhichthefirmhascurre ncyexposure.Yourforecastisthatexcha ngerateswillcha ngefrom$1.00=CD1.25=Ps3.30=A1.00= 105=W800to$1.

23、00=CD1.30=Ps3.30=A1.03= 105=W800.SuggestedSolutiontoSundanceSportingGoods,Inc.December 31,2005:Pre-Excha ngeRateCha nge(i nOOODollars)Sundan ce,I nc.Mexica nCan adia nCon solidated(pare nt)AffiliateAffiliateBala nceSheetAssets$2,890HCash$1,500$430$960Acco un tsreceivable2,100a849e1,200 f4,149Inven t

24、ory5,0001,8792,0008,879In vestme ntinM exica naff iliatebIn vestme nti nCan adia naf filiatec-Netfixedassets12,0003,3944,48019,874Totalassets$35,792Liabilitiesa ndNetWorthAcco un tspayable$3,000$358a$1,360$4,718Notespayable4,000d1,2731,8407,113nLon g-termdebt9,0002,1211,84012,961寸Common stock5,000bc

25、5,000Reta in edear nings6,000bc6,000nTotalliabilitiesa ndnet worth$35,792a$2,500,000-$400,000(=Ps1,320,000/(Ps3.30/$1.00)i ntracompa nyloa n=$2,100,000.Thei nvestme nti ntheaffiliatesca ncelswiththe networthoftheaffiliatesi nthecon solidatio n.dThepare ntowesaJapa neseba nk126,000,000.Thisiscarriedo

26、 nthebooksas$1,200,000(= 126,000,000/( 105/$1.00).eTheMexica naffiliatehassold on acco un tA120,000ofmercha ndisetoa nArge ntin eimporthouse.Thi siscarriedontheMexicanafiliate sbooksasPs396,000(=A120,000xPs3.30/A1.00).fTheCa nadia naffiliatehassold on acco un tW192,000,000ofmercha ndisetoaKorea ni m

27、porter.Thisi scarriedonth eCanadianaffiliate sbooksasCD300,000(=W192,000,000/(W800/CD1.25). Tran slatio nExposureReportforS undan ceSporti ngGoods,l nc.an ditsMexica nan dCa nadia nAffiliates,December 31,2005(i n000Curre ncyU nits)JapaneseMexica nCan adia nArgen ti nKorea nYenPesoDollareWonAustralAs

28、setsCash 0Ps1,420CD1,200A0W0Acco un tsreceivable02,4041,200120192,000Inven tory06,2002,50000Fixedassets011,2005,60000Exposedassets 0Ps21,224CD10,500A120W192,000LiabilitiesAcco un tspayable 0Ps1,180CD1,700A0W0Notespayable126,0004,2002,30000Lon g-termdebt 07,0002,30000Exposedliabilities 126,000Ps12,38

29、0CD6,300A0W0Netexposure( 126,000)Ps8,844CD4,200A120W192,000Snew(i / reporting)Net Exposure Curre ncy iNet Exposure Curre ncy iSold (i / reposing)=ReportingCurrencylmbalanee.Fromthetra nslati on exposurereportweca ndeterm in ethatthedepreciati onin theCa nadia ndollarwillcauseaCD4,200,000CD1.30 / $1.

30、00CD4,200,000 = -$129,231CD1.25/ $1.00reportingcurrencyimbalanee.Similarly,thedepreciati onin theArge ntin eaustralwillcauseaA120,000A1.03/ $1.00A120,000A1.00/$1.00-$3,495reporti ngcurre ncyimbala nee.In total,thedepreciati ono ftheCa nadia ndollara ndtheArge ntin eaustralwillcausearepor tin gcurre

31、ncyimbala nceintran slatedvalueequalto-$129,231-$3,495二$132,726.December 31,2005:Post-Excha ngeRateCha nge(i nO OODollars)Sundan ce,I nc. (pare nt)Mexica n AffiliateCan adia nAffiliateCon solidat edBala nceSheThei nvestme nti ntheaffiliatesca ncelswiththe networthoftheaffiliates in thec on solidati

32、on.AssetsCash$1,500$430$923$2,853Acco un tsreceivable2,100 a845e1,163f4,108Inven tory5,0001,8791,9238,802In vestme nti nM exica naf filiatebIn vestme nti nCan adia na ffiliatecNetfixedassets12,0003,3944,30819,702Totalassets$35,465Liabilitiesa ndNetWort hAcco un tspayable$3,000$358a$1,308$4,666Notesp

33、ayable4,000 d1,2731,7697,042Lon g-termdebt9,0002,1211,76912,890Common stock5,000bc5,000Reta in edear nings6,000bc6,000CTA-(133)Totalliabilitiesa ndne tworth$35,465eta$2,500,000-$400,000(=Ps1,320,000/(Ps3.30/$1.00)i ntracompa nyloa n=$2,100,000.b cdThepare ntowesaJapa neseba nk 126,000,000.Thisiscarr

34、iedo nthebooksas$1,200,000(= 126,000,000/( 105/$1.00).eTheMexica naffiliatehassold on acco un tA120,000ofmercha ndisetoa nArge ntin eimporthouse.Thi siscarriedontheMexicanafiliate sbooksasPs384,466(=A120,000xPs3.30/A1.03).fTheCa nadia naffiliatehassold on acco un tW192,000,000ofmercha ndisetoaKorea

35、ni mporter.Thisi scarriedontheCanadianafiliate sbooksasCD312,000(=W192,000,000/(W800/CD1.30)Tran sactio nExposureReportforS undan ceSporti ngGoods,l nc.anditsMexica nan dCa nadianAffiliates,December 31,2005AffiliateAmountAcco untTran slati onExposurePare ntPs1,320,000Acco un tsReceiva bleNoPare nt 1

36、26,000,000NotesPayableYesMexica nA120,000Acco un tsReceiva bleYesCan adianW192,000,000Accou ntsReceivaYesbleThepare ntfirmca npayoffthe 126,000,000loa nfro mtheJapa neseba nkus ingfun dsfromthecashacco untandmon eyfromacco unts receivablethatitwillcollect.Additi on ally,thepare ntfirmca ncollectthea

37、cco un tsreceivabl eofPs1,320,000fromitsMexica naffiliatethatiscarriedo nthebooksas$400,000.l nturn,theMex ican affiliateca ncollecttheA120,000acco un tsreceivablefromtheArge ntin eimporter,valueda tPs384,466afterthedepreciati onin theaustral,toguardaga in stfurtherdepreciati onan dtouse topartially

38、payoffthepesoliabilitytothepare nt.TheCa nadia naffiliateca nelim in ateitstra nsact ion exposurebycollect in gtheW192,000,000acco un tsreceivableasso on aspossible,whichis curre ntlyvaluedatCD312,000.Theelimi natio no fthesetra nsactio nexposureswillafectthetra nslatio nexposureofS undan ceMNC.Arevisedtra nslati on exposurereportfollows.RevisedTra nslatio nExposureReportf