CHAPTER 16 MULTINATIONAL OPERATIONS Timothy S. Doupnik Moore School of BusinessUniversity of South CarolinaColumbia, South CarolinaLEARNING OUTCOMES After completing this chapter, you will be able to do the following:Distinguish local currency, functional currency, and the presentation currency. Analyze the impact of changes in exchange rates on the translated sales of the subsidiary and parent company. Compare and contrast the current rate method and the temporal method, analyze and evaluate the effects of each on the parent company ’ s balance sheet and income statement, and distinguish which method is appropriate in various scenarios. Calculate the translation effects, evaluate the translation of a subsidiary ’ s balance sheet and income statement into the parent company ’ s currency, use the current rate method and the temporal method to analyze how the translation of a subsidiary ’ s financial statements will affect the subsidiary ’ s fi nancial ratios, and analyze how using the temporal method versus the current rate method will affect the parent company ’ s financial ratios. Illustrate and analyze alternative accounting methods for subsidiaries operating in hyperinfl ationary economies. 1. INTRODUCTION According to the World Trade Organization, merchandise exports worldwide exceeded US$10 trillion in 2005. 1The top five exporting countries, in order, were Germany, the United States, China, Japan, and France. From 2000 to 2005, international trade grew by 62 percent.
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