Suppose General Motors built an assembly plant in Canada at a cost of fifty million Canadian dollars. At the time the plant was built, the direct quote for the Canadian dollar was $.7376. If one year later the Canadian dollar strengthened to $0.7388, what gain or loss would GM show on its financial books?

Question

Quizplus · Accepted Answer

To calculate the gain or loss on the financial books, we need to calculate the change in value of the Canadian dollar against the US dollar.

At the time the plant was built: 
$50,000,000 CAD x $0.7376 = $36,880,000 USD

One year later: 
$50,000,000 CAD x $0.7388 = $36,934,000 USD

The difference between these two values is: 
$36,934,000 - $36,880,000 = $54,000

Since the Canadian dollar strengthened, this is a translation gain for GM. Therefore, the correct answer is B) A translation gain of $60,000.

Suppose General Motors Built an Assembly Plant in Canada at a Cost