7. [Balance sheet effects of currency changes] Lucent Tech- nologies [LU] has substantial foreign operations. The company's annual report for the year ended September 30, 2001 includes the following data (in $millions): Years Ending September 30 1999 2000 2001 Change in currency translation adjustment S(33) $(185) $(30) Effect of exchange rate changes on cash 41 10 Gain (loss) on foreign currency translation (8) (18) (58)

a. State the information that these disclosures provide about Lu- cent's choice of functional currency for its non-U.S. operations.

b. State the information that the change in the CTA amounts conveys about the change in the value of currencies to which Lucent was exposed relative to the US dollar

c. Compare the effect of exchange rate changes on cash for each year with the change in the CTA for the same year State for which year(s) the effect on cash is surprising and explain why. Provide one possible explanation for the sur- prising result(s).

d. Describe two possible sources of the gain (loss) on foreign currency translation.