ervlet/quiz?quiz action-takeduizaiquiz probGuId ONAPCOAB01010000002a0361d00cbbbb

Question

ervlet/quiz?quiz action-takeduizaiquiz probGuId ONAPCOAB01010000002a0361d00cbbbbBctx vpande 10. Multinational working capital management Aa Multinational companies are exposed to complex management and allocation of the ir resources. A multinational company's cash management, credit management, inventory management, and so on, need to have several addtional elements factored in compared with those of a purely domestic corporation. Consider this case: Streep Inc. is a U.S.-based multinational firm with a subsidiary in Switzerland. Last week, Streep creeted its periodic financial statements, and the subsidiary had SFr 60,000 worth of inventory on its balance sheet. Streep translated the value of inventory using the spot exchange rate at that time of $0.8153/ SFr and recorded that value on its consolidated balance sheet. Decisions related to amount of investment in Inventory and inventory policy need to factorin need to factor in Subsidiary in S need to factor in the following . Exchange rates Possibility of import and export quotas or tariffs However, this week the exchange rate changed dramatically to $0.8925/ SFr. The subsidiary still has the same amount of inventory (valued at SFr 60,000), Possibility of at-sea storage If the firm were to create a new consolidated balance sheet and translate the value of its inventory at the new spot exchange rate, what would happen to the dollar value of inventory? O It would increase by $5,095. would decrease by S5558. It would increase by $4,632. O It would decrease by $4,632 The change in inventory value wes created purely by accounting and exchange rate factors, because the subsidiary still has the same inventory and assets in place. However, this change would affect Streep's con solidated financial

Explanation / Answer

1) Dollar value at previous exchange rate = 0.8153*60000 = $48918

Dollar value at new exchange rate = 0.8925*60000 = $53550

change = 53550 - 48918 = $4632 (increase)

2) The ratio doesnot change because both current asset items and current liabilities items are converted at the same rate and the difference in rates cancel out while arriving at quick ratio

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