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Part $3$:

The following information is available about the operations of PTI and its subsidiary STI:

PTI has the right to appoint all ten members of the STI board of directors. However, after purchasing $100\%$ of the shares, PTI left eight pre$-$existing members in place because of their local connections, and appointed only two new members, one of which is the chair of the board. STI generates sufficient cash flow from its own operations to service its debt. STI has remained largely autonomous from PTI, and it makes its own strategic decisions about what products to manufacture. At the end of $2023,$ STI distributed some of its excess cash to PTI by way of dividends.

STI prepares its stand$-$alone financial statements in accordance with IFRS, in euros. Because of this, STI's accounting policies are generally consistent with those of PTI.

STI sells all its production in Canada with the sales denominated in Canadian dollars $($C$$).$ Approximately $55\%$ of sales are made to PTI, with the remaining $45\%$ sold to other Canadian wholesalers. STI sources most of its labour and materials locally, paying for those items with euros.

Canadian dollar sales proceeds are converted to euros as needed to meet operational requirements and debt servicing obligations. Approximately $40\%$ of excess cash is retained in Canadian dollars, with the balance held in euros.

During the last $10$ years, the inflation rate in Belgium has fluctuated between $1\%$ and $2\%$ per year, similar to Canadian inflation rates.

Required:

Analyze the above information and determine whether the functional currency of STI is the Canadian dollar or the euro. $(10$ Marks$)$

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