In translating a foreign subsidiary's financial statements, exchange rate which is effective on the balance sheet day is required by the the current rate method for the subsidiary's assets and liabilities.
When any company has operations in other countries, it is required to exchange the foreign currency earned by the foreign operations into the currency which is used at the time when preparing the company's financial statements.
The current rate method is a method of foreign currency translation where most of the items in the financial statements are translated at the current exchange rate.
The current rate method is utilized in situations where the subsidiary company is not well integrated with the parent company.
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