Question

If a foreign entity is only a shell company for carrying accounts that could be carried on the parent's books

A) the functional currency would generally be theparent's currency.
B) the functional currency would generally be thelocal currency.
C) there is no reason to hedge transaction exposure.
D) none of the options

Answer 1

The functional currency would generally be the parent's currency. The correct answer is option A).

Step-by-step explanation:

When a foreign entity is only a shell company for carrying accounts that could be carried on the parent's books, the functional currency would generally be the parent's currency (option A). The functional currency is the currency in which the entity primarily operates and generates cash flows. In this case, since the shell company is for accounts that could be carried on the parent's books, it makes sense for the parent's currency to be the functional currency.