If the British subsidiary of a European firm has net exposed assets of £125,000, and the pound increases in value from €1.40/£ to €1.44/£, the European firm has a translation:
A) loss of €5,000.
B) gain of €5,000.
C) gain of £5,000.
D) loss of £5,000.

Question

Quizplus · Accepted Answer

To calculate the translation gain or loss, we need to convert the net exposed assets from pounds to euros.

125,000 pounds / 1.40 euros per pound = 178,571.43 euros 
125,000 pounds / 1.44 euros per pound = 180,555.56 euros

So, the net exposed assets increased in value by 1,984.13 euros (180,555.56 - 178,571.43), which means a translation GAIN of €1,984.13 or approximately €5,000 (1,984.13 / 0.40).

If the British Subsidiary of a European Firm Has Net