- CFA Exams
- CFA Level I Exam
- Study Session 5. Financial Reporting and Analysis (1)
- Reading 15. Multinational Operations
- Subject 1. Effects of Exchange Rate Changes
CFA Practice Question
Which statement is true about the effect of exchange rates on reported sales of a non-US based subsidiary?
A. Reported sales dollars may fluctuate due to changes in exchange rates even though unit volumes remain constant.
B. The temporal method uses historical rates to translate sales and, therefore, fluctuations in exchange rates have no effect on reported dollar sales.
C. Fluctuations in exchange rates have no effect on reported dollar sales of the non-US based subsidiary
Explanation: Constant unit volumes and selling prices yield stable sales in the local currency. If exchange rates fluctuate, however, stable local currency sales will yield fluctuating $US sales.
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