Currency Conversion – NBC Institute

SCS – Nov 2019 – L3 – Q2b – Capital structure

Discuss the potential benefits and problems of converting short-term borrowing into long-term loans.

Question

i) Discuss the potential benefits and problems with proposals to convert the company’s short-term borrowings into a longer-term loan.

ii) Pay bigger cash salaries, or add a share option element to the remuneration packages.

iii) Maintain the dividend for 2019 at the 2018 level, or even reduce it further.

iv) Convert any surplus dollar cash into cedis.

(10 marks)

Answer

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Tags: Borrowing, Currency Conversion, Financial structure, Foreign Exchange, Long-term loans, Risk Management
Level: Level 3

Topic: Capital structure
Series: NOV 2019

CR – Aug 2022 – L3 – Q3a – Foreign currency

This question requires an explanation on how the functional currency of a subsidiary (Sunyani Ltd) should be determined according to IAS 21.

Question

Hamma Ltd is the parent company of a multinational listed group of companies. Hamma Ltd uses the dollar ($) as its functional currency. Hamma Ltd recently acquired 80% of the equity shares of Sunyani Ltd, a company located in the Bono Region of Ghana, on 1 January 2022. The group’s current financial year-end is 31 December 2022.

The head office of Sunyani Ltd is located in Sunyani, which uses the Ghana Cedi (GH¢) as its main currency. However, its staff are spread across various locations. Consequently, half of the staff are paid in GH¢, and the other half are paid in $. Sunyani Ltd has a high degree of autonomy and is not reliant on finance from Hamma Ltd, nor do sales to Hamma Ltd make up a significant proportion of their income. All of its sales and purchases are invoiced in GH¢, and therefore, Sunyani Ltd raises most of its finance in GH¢. Cash receipts are retained in GH¢. Sunyani Ltd does not operate a $ bank account. Sunyani Ltd is required by law to pay tax on its profits in GH¢.

Required:

In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates, explain to the directors of Hamma Ltd how the functional currency of Sunyani Ltd should be determined. (5 marks)

Answer

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Tags: Currency Conversion, Foreign Exchange, Functional Currency
Level: Level 3

Topic: Foreign currency
Series: AUG 2022

SCS – Nov 2019 – L3 – Q2b – Capital structure

Discuss the potential benefits and problems of converting short-term borrowing into long-term loans.

Question

i) Discuss the potential benefits and problems with proposals to convert the company’s short-term borrowings into a longer-term loan.

ii) Pay bigger cash salaries, or add a share option element to the remuneration packages.

iii) Maintain the dividend for 2019 at the 2018 level, or even reduce it further.

iv) Convert any surplus dollar cash into cedis.

(10 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Borrowing, Currency Conversion, Financial structure, Foreign Exchange, Long-term loans, Risk Management
Level: Level 3

Topic: Capital structure
Series: NOV 2019

CR – Aug 2022 – L3 – Q3a – Foreign currency

This question requires an explanation on how the functional currency of a subsidiary (Sunyani Ltd) should be determined according to IAS 21.

Question

Required:

In accordance with IAS 21: The Effects of Changes in Foreign Exchange Rates, explain to the directors of Hamma Ltd how the functional currency of Sunyani Ltd should be determined. (5 marks)

Answer

Find Related Questions by Tags, levels, etc.

Tags: Currency Conversion, Foreign Exchange, Functional Currency
Level: Level 3

Topic: Foreign currency
Series: AUG 2022

Question Tag: Currency Conversion

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SCS – Nov 2019 – L3 – Q2b – Capital structure

Discuss the potential benefits and problems of converting short-term borrowing into long-term loans.

CR – Aug 2022 – L3 – Q3a – Foreign currency

This question requires an explanation on how the functional currency of a subsidiary (Sunyani Ltd) should be determined according to IAS 21.

SCS – Nov 2019 – L3 – Q2b – Capital structure

Discuss the potential benefits and problems of converting short-term borrowing into long-term loans.

CR – Aug 2022 – L3 – Q3a – Foreign currency

This question requires an explanation on how the functional currency of a subsidiary (Sunyani Ltd) should be determined according to IAS 21.

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Question Tag: Currency Conversion

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SCS – Nov 2019 – L3 – Q2b – Capital structure

Discuss the potential benefits and problems of converting short-term borrowing into long-term loans.

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CR – Aug 2022 – L3 – Q3a – Foreign currency

This question requires an explanation on how the functional currency of a subsidiary (Sunyani Ltd) should be determined according to IAS 21.

You're reporting an error for "CR – Aug 2022 – L3 – Q3a – Foreign currency"

SCS – Nov 2019 – L3 – Q2b – Capital structure

Discuss the potential benefits and problems of converting short-term borrowing into long-term loans.

You're reporting an error for "SCS – Nov 2019 – L3 – Q2b – Capital structure"

CR – Aug 2022 – L3 – Q3a – Foreign currency

This question requires an explanation on how the functional currency of a subsidiary (Sunyani Ltd) should be determined according to IAS 21.

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