If the European subsidiary of a U. S. firm has net exposed assets of euro 200,000, and the euro increases in value from $1.22/euro to $1.26/euro the U. S. firm has a translation: A. loss of $8,000. B. gain of $8,000. C. loss of euro 252,000. D. gain of $252,000.

Question

Caden Cherry

Business

6 September, 11:23

If the European subsidiary of a U. S. firm has net exposed assets of euro 200,000, and the euro increases in value from $1.22/euro to $1.26/euro the U. S. firm has a translation: A. loss of $8,000. B. gain of $8,000. C. loss of euro 252,000. D. gain of $252,000.

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Answers (1)

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Kenyon Mcguire · Answer 1

B. Gain $8,000

Explanation:

The calculation of exchange translation is shown below:-

Old exchange rate = Net exposed assets * Value of Euro

= 200,000 * $1.22

= $244,000

New value in euro = Net exposed assets * Increased exchange rate

= 200,000 * $1.26

= $252,000

Translation Profit = New value in euro - Old exchange rate

= $252,000 - $244,000

= $8,000