If the functional currencies for reporting purposes are highly correlated, translation exposure is magnified.

Question

Quizplus · Accepted Answer

When functional currencies for reporting purposes are highly correlated, movements in exchange rates between those currencies can have a greater impact on the consolidated financial statements of the company. This increases the translation exposure, which refers to the risk of losses or gains resulting from the translation of foreign currency financial statements into the company's reporting currency for consolidation purposes. Thus, option A is correct.

If the Functional Currencies for Reporting Purposes Are Highly Correlated