_____ Parco has a German subsidiary, Sarco. On 1/1/06, Parco concluded that the euro would weaken during the remainder of 2006. On this date, Sarco's balance sheet in euros was as follows:
Sarco's functional currency is the euro. On 1/1/06, Parco entered into a 12-month FX forward to sell 100,000 euros at the forward rate of $.60 (the spot rate at the time was also $.60). On 12/31/06, Parco settled the FX forward when the direct exchange rate was $.56. Using only the above information, what is Parco's change in its AOCI-Cumulative Translation Adjustment account for 2006?
A) A $4,000 decrease from the translation process.
B) A $4,000 increase from the hedging transaction.
C) No change ($4,000 decrease from the translation process offset by $4,000 increase from the hedging transaction).
D) An $8,000 decrease ($4,000 decrease from the translation process and $4,000 decrease from the hedging transaction).
E) None of the above.

Question

_____ Parco has a German subsidiary, Sarco. On 1/1/06, Parco concluded that the euro would weaken during the remainder of 2006. On this date, Sarco's balance sheet in euros was as follows:
 Sarco's functional currency is the euro. On 1/1/06, Parco entered into a 12-month FX forward to sell 100,000 euros at the forward rate of $.60 (the spot rate at the time was also $.60). On 12/31/06, Parco settled the FX forward when the direct exchange rate was $.56. Using only the above information, what is Parco's change in its AOCI-Cumulative Translation Adjustment account for 2006?
A) A $4,000 decrease from the translation process. 
B) A $4,000 increase from the hedging transaction. 
C) No change ($4,000 decrease from the translation process offset by $4,000 increase from the hedging transaction). 
D) An $8,000 decrease ($4,000 decrease from the translation process and $4,000 decrease from the hedging transaction). 
E) None of the above.

Quizplus · Accepted Answer

The Answer of _____ Parco has a German subsidiary, Sarco. On 1/1/06, Parco concluded that the euro would weaken during the remainder of 2006. On this date, Sarco's balance sheet in euros was as follows:
 Sarco's functional currency is the euro. On 1/1/06, Parco entered into a 12-month FX forward to sell 100,000 euros at the forward rate of $.60 (the spot rate at the time was also $.60). On 12/31/06, Parco settled the FX forward when the direct exchange rate was $.56. Using only the above information, what is Parco's change in its AOCI-Cumulative Translation Adjustment account for 2006?
A) A $4,000 decrease from the translation process. 
B) A $4,000 increase from the hedging transaction. 
C) No change ($4,000 decrease from the translation process offset by $4,000 increase from the hedging transaction). 
D) An $8,000 decrease ($4,000 decrease from the translation process and $4,000 decrease from the hedging transaction). 
E) None of the above.

_____ Parco Has a German Subsidiary, Sarco