【正文】 o change. Given this definition, the current rate method presumes that all local currency assets are exposed to exchange risk as the current (versus the historical) rate changes the parent currency equivalent of a foreign currency balance every time exchange rates change. This seldom happens, however, as inventory and fixed asset values are generally supported by local inflation. Consider the following example. Suppose that a foreign affiliate of a . multinational corporation (MNC) buys a tract of land at the beginning of the period for FC1000000. The exchange rate (historical rate) was FC1=$1. Thus, the historical cost of the investment in dollars is $1000000. Due to inflation, the land rises in value to FC 1500000(unrecognized under . GAAP) while the exchange rate declines to =$1 by period’s end. If this foreign currency asset were translated to . dollars using the current rate, its original dollar value of $1000000 would now be recorded at $714286 implying an exchange loss of $285714. Yet the increase in the fair market value of the land indicates that its current value in . dollars is really $1071285. This suggests that translated asset values make little sense without making local price level adjustments first. Also, translation of a historical cost number by a current marketdetermined exchange rate produces a result that resembles neither historical cost nor current market value. Finally, translating all foreign currency balances by the current rate creates translation gains and losses every time exchange rates change. Reflecting such exchange adjustments in current ine could significantly distort reported measures of performance. Many of these gains and losses may never be fully realized, as changes in exchange rates often reverse direction. Multiple rate methods Multiple rate methods bine the current and historical exchange rates in the translation process. Currentnoncurrent method Under the currentnoncurrent method, a foreign subsidiary’s current assets and current liabilities are translated into their parent pany’s reporting currency at the current rate. Noncurrent assets and liabilities are translated at historical rates. Ine statement items (except for depreciation and amortization changes) are translated at average rates applicable to each month of operation or on the basis of weighted averages covering the whole period being reported. Depreciation and amortization changes are translated at the historical rates in effect when the related assets were acquired. Unfortunately, this method makes little economic sense. Using the yearend rate to translate current assets implies that foreign currency cash, receivables, and inventories are equally exposed to exchange risk. This is simply not true. For example, if the local price of inventory can be increased after a devaluation, its value is protected from currency exchange risk. On the other hand, translation of longterm debt at the historical rate shifts the impact of fluctuating currencies to the year of settlement. Many consider this to be at odds with reality. Moreover, current and noncurrent definitions are merely a classification scheme, not a conceptual justification of which rates to use in translation. Moarynonmoary method The moarynonmoary method also uses a balance sheet classification scheme to determine appropriate translation rates. Moary assets and liabilities are translated at the current rate. Nonmoary items—fixed assets, longterm investments, and inventoriesare translated at historical rates. Ine statement items are translated under procedures similar to those described for the currentnoncurrent framework. Unlike the currentnoncurrent method, this method views moary assets and liabilities as exposed to exchange rate risk. Since moary items are settled in cash, use of the current rate to translate these items produces domestic currency equivalents that reflect their realizable or settlement values. It also reflects changes in the domestic currency equivalent of longterm debt in the period in which they occur, producing a more timely indicator of exchange rate effects. Note, however, that the moarynonmoary method relies on a classification scheme to determine appropriate translation rates. This may lead to inappropriate results. For example, this method translates all nonmoary assets at historical rates, which is not reasonable for assets stated at current market values (such as investment securities and inventory and fixed assets written down to market). Multiplying the current market value of a nonmoary asset by a historical exchange rate yields an amount in the domestic currency that is neither the item’s current equivalent nor its historical cost. This method also distorts profit margins by matching sales at current prices and translation rates against cost of sales measured at historical costs and translation rates. Temporal method With the temporal method, currency translation is a measure