Question

If the parent firm and all subsidiaries denominate all exposed assets and liabilities in the​ parent's reporting currency this will​ ________ exposure but each subsidiary would have​ ________ exposure.

Answer 1

The correct words for the blank spaces are: eliminate translation; transaction.

Step-by-step explanation:

Exposure to accounting translation occurs when a company handles part of its operations in a different country where the domestic currency is different than the currency in the country where the company has its headquarters. Due to exchange rates, the translation of the currency could generate profits or losses for the firm.

However, if the firm and its subsidiaries set the same currency to conduct business translation would be erased. Subsidiaries would still have transaction exposure since the official currency of the parent company is unlikely to be the same the subsidiary uses, thus, the subsidiary is still subject to the fluctuations in exchange rates.