Question #113
Reading: Reading 10 Multinational Operations
PDF File: Reading 10 Multinational Operations.pdf
Page: 62
Status: Unattempted
Correct Answer: A
Question
The U.S. dollar has been depreciating relative to the local currency over the past year. The use of the current rate method to translate a foreign subsidiary's financial statements to U.S. dollars will most likely have which of the following effects on the operating profit margin (EBIT/S) relative to what the ratio would have been without the effects of translation?
Answer Choices:
A. There will be no effect on the ratio
B. The ratio will rise
C. The ratio will fall
Explanation
Under the current rate method, the average rate is applied to all income statement
accounts. Hence, since the average rate is applied to both numerator and denominator of
the equation and the ratio will not change.