Question 4. Theory

Victory Ltd is an Australian company with two overseas subsidiaries, one in Indonesia and the other in South Korea. The Indonesian subsidiary has as its major activity the distribution in Indonesia of Victory Ltd's products. It has been agreed that the subsidiary will, for a period of time, retain all profits in order to expand its distribution network in Indonesia. In the past it has remitted most of its profits to the Australian parent company.

The South Korean subsidiary has been established to manufacture a range of products for the South-East Asian market. There is also an expectation that it could in the future become the major manufacturing plant for Victory Ltd and provide a supply of products for the Australian market.

Required:

Based on the above, determine the functional currency of the foreign subsidiaries. Explain your choice. (20 marks)