When determining the functional currency,
A)if the sales prices for the foreign entity's products are generally not responsive on a short-term basis to exchange rate changes,but are determined more by local competition and government regulation,the local currency should be the functional currency.
B)if there is an active local market for the foreign entity's products the local currency should be the functional currency.
C)if factor of production costs for the foreign entity are primarily,and on a continuing basis,costs for components obtained from the parent's country the function currency should be the home currency.
D)all of the options

Question

Quizplus · Accepted Answer

Each option describes a scenario that influences the determination of a functional currency according to financial accounting standards. A) focuses on sales prices not being responsive to exchange rate changes, suggesting the local currency is more relevant. B) highlights the presence of an active local market, which supports the use of the local currency. C) points out that if production costs are primarily from the parent's country, the home currency might be more appropriate. Collectively, these scenarios cover different aspects that must be considered, indicating that all options are correct in specific contexts.

When Determining the Functional Currency