Question

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.

Answer 1

B. Gain $8,000

Step-by-step 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