Foreign Currency Translation Method Choice: Insights From Game Theory

Abstract

This paper utilizes a game-theoretical framework to analyze managerial behavior in the context of choosing foreign currency translation methods. The aforementioned problem can be constructed as a model of decision-making under uncertainty. The results of this analysis are as follows: adopt the current rate method when managerial compensation is a function of reported accounting earnings; conversely the temporal method should be employed when managerial compensation takes the form of stock options.