If the European subsidiary of a U.S. firm has net exposed assets of €750,000, and the euro drops in value from $1.30/euro to $1.20/€ the U.S. firm has a translation:
A) gain of $75,000.
B) loss of $75,000.
C) gain of $625,000.
D) loss of €576,923.

Question

Quizplus · Accepted Answer

The net exposed assets of €750,000 would be translated to $975,000 at the exchange rate of $1.30/euro. However, if the euro drops to $1.20/€, the same net exposed assets would only be worth $900,000. Thus, the U.S. firm would have a translation loss of $75,000.

If the European Subsidiary of a U