The impact of financing in determining the functional currency
A)financing does not impact the choice of functional currency due to the integrated nature of capital markets.
B)if the financing of the foreign entity is primarily denominated in the foreign currency and the debt service obligations are normally handled by the foreign entity, the functional currency is the foreign currency.
C)if the financing of the foreign entity is primarily from the parent, with debt service obligations are normally handled by the parent, the functional currency is the home currency.
D)both b and c

Question

Quizplus · Accepted Answer

The financing structure of the foreign entity plays a significant role in determining the functional currency. If the financing is primarily denominated in the foreign currency and is serviced by the foreign entity, the functional currency is the foreign currency. On the other hand, if the financing is primarily from the parent with debt service obligations handled by the parent, the functional currency is the home currency. Therefore, both options B and C are valid choices depending on the financing structure of the foreign entity.

The Impact of Financing in Determining the Functional Currency