Question

Examine the five following cases and determine if the functional currency of a U.S. parent’s foreign unit is the foreign currency or the U.S. Dollar.

   (Hint: Review Chapter 8 PowerPoint notes on Slides 21-22 and Textbook Chapter 8 on Page 648.)

Scenario	Functional Currency is? (the foreign currency or the U.S. Dollar?)
Receivables and payables denominated in foreign currency are not usually remitted to parent company.
Sales prices are influenced by worldwide competitive conditions and responsive on a short-term basis to exchange rate changes.
Foreign unit obtains materials primarily from its own country.
The unit’s financing is taken care of through ongoing fund transfers by the parent.
There is a low volume of intercompany transactions and little operational interrelations between the U.S. parent and foreign unit.

Answer 1

Scenario	Functional Currency is? (the foreign currency or the U.S. Dollar?)
Receivables and payables denominated in foreign currency are not usually remitted to parent company.	Foreign Currency
Sales prices are influenced by worldwide competitive conditions and responsive on a short-term basis to exchange rate changes.	US Dollar
Foreign unit obtains materials primarily from its own country.	Foreign Currency
The unit’s financing is taken care of through ongoing fund transfers by the parent.	US Dollar
There is a low volume of intercompany transactions and little operational interrelations between the U.S. parent and foreign unit.	Foreign Currency