Impact of Currency Depreciation on Financial Reporting

Medium Multinational Operations Impact On Financial Statements

When a multinational corporation (MNC) operates in various countries, it must report its financial results in accordance with the accounting standards that apply to its home country. Additionally, variations in foreign currency exchange rates can significantly impact the financial statements of the MNC. Suppose that Company XYZ operates in several countries and consolidates its financial statements in US dollars.

Due to a sudden depreciation in the Canadian dollar against the US dollar, the revenues generated from its Canadian subsidiary (which reports in CAD) decline in USD terms when converted for consolidation. As a result, this affects both the revenue recognized and the overall financial performance reported by the company. Which of the following statements accurately describes the impact of foreign currency fluctuations on Company XYZ's financial statements?

A depreciation of the Canadian dollar will increase the revenue reported in USD terms.

A depreciation of the Canadian dollar will not impact the net income reported in USD terms.

A depreciation of the Canadian dollar will decrease the revenue reported in USD terms.

Hint

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