THE PREFERRED FUNCTIONAL CURRENCY FOR SUBSIDIARIES THAT ARE MOSTLY INDEPENDENT OF THE PARENT IS THE LOCAL CURRENCY

1. Analyst 1: The preferred functional currency for subsidiaries that are mostly independent of the parent is the local currency. Analyst 2: For highly integrated subsidiaries (regardless of local conditions), or for subsidiaries operating in high-inflation environments, the parent’s reporting currency should be used as the functional currency. A. Analyst 1 is correct. B. Analyst 2 is correct. C. Both analysts are correct. LO.b: Describe foreign currency transaction exposure, including accounting for and disclosures about foreign currency transaction gains and losses.