Which one of the following would constitute a highly inflationary economy when determining the functional currency of a foreign entity?

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Business

Phoenix Marks

13 February, 02:41

Which one of the following would constitute a highly inflationary economy when determining the functional currency of a foreign entity?

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Answers (1)

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Lizbeth · Answer 1

The answer is stated below:

Explanation:

Functional currency is the one which states the primary and foremost economic environment in which the entity generate cash as well as expends cash.

It is used by the business units or the business as a monetary unit of account.

For determining or evaluating the functional currency, a hyper inflationary economy is one which experience a combined inflation of 100% or more over the past three years.

Inflation is 35% every year over the last 3 years which is a combined 105% and constitutes to a economy which is highly inflationary.