Question

when the parent company of a foreign subsidiary believes that all of its investment in the subsidiary is exposed to foreign exchange risk, what method of translation should be

Answer 1

Answer:

Current rate method

Explanation:

Translation is defined as the conversion of financial statement of a foreign subsidiary from the foreign currency to local currency.

This is done to reduce the effect of foreign exchange risk.

If a foreign subsidiary is exposed to foreign exchange risk the best translation method is the current rate method.

Current rate method uses the current exchange rate in translation.

Translation is used when the local currency is the functional currency of the company.