CFA CFA Level 2 Temporal and Current Rate Method

Temporal and Current Rate Method

  • This topic has 6 replies, 5 voices, and was last updated Mar-17 by vincentt.
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  • Sarah
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    Chapter 21 on multinational operations is frustrating me a little bit. I just can’t seem to distill all the information into a logical sequence. I’ve read the chapter twice and it still doesn’t make much sense. At the moment, I don’t have any particular questions. I memorized what rates to use for the accounts but I trip up with the currency appreciate/depreciate and what happens with the ratios.

    Sophie Macon
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    Ah I remember this one well @Diya! I think it’s best to wait until you come across a specific example question, and we’ll walk through it trying to see where the gaps in your understanding is.

    It took me a while to make sense of it, but it can be distilled in a logical sequence.

    Sarah
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    @Sophie you are right. 40 questions later and it is making more sense.

    christine
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    lol @diya. I remember this well too.

    If you have a specific question do share it here and we can dissect it together.

    jimmyg
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    I was terrible at this. Thank god this doesn’t continue in Level 3.

    Sarah
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    I’m glad I’m not the only one frustrated with this.

    @jimmyg
    thanks for the offer, if I find a particularly annoying one I will share =D

    vincentt
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    @diya I do memorise the stuff in this topic however sometimes you might forget in the exam so following is the method i used to memorise the appreciation/depreciation of the foreign currency (of your subsidiary)

    GBPUSD 1.5 (1gbp = 1.5usd)

    A subsidiary in US owned by a UK company, has an asset of $150k (which means £100k)

    Now, depreciating your foreign currency GBPUSD 2.0 (1gbp = 2usd)

    your existing asset in the US subsidiary $150k is now only £75k.

    Hence, depreciation FOREIGN currency = LOSS in ASSET

    the opposite of that is GAIN in LIABILITY (theory behind it? since depreciated foreign currency resulting in a loss in the subsidiary’s asset value, likewise the liability will be smaller too. Remember liability is negative hence smaller negative = gain!)

    And obviously the opposite of depreciation (appreciation):

    GAIN in Asset
    LOSS in Liability

    hope that helps.

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