If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound increases in value from euro 1.40/£ to euro 1.45/£, the European firm has a translation ________.

Question

Quizplus · Accepted Answer

A translation loss occurs when the value of the subsidiary's assets decreases due to changes in exchange rates. In this case, the pound has increased in value, meaning that the euro has weakened. Therefore, when the European firm translates the net exposed assets of its British subsidiary back into euros, the value will be lower than before. The calculation for the loss is:
250,000 / 1.40 = €178,571 (original value in euros)
250,000 / 1.45 = €172,414 (new value in euros)
€178,571 - €172,414 = €6,157 loss (approximately £25,000)

If the British Subsidiary of a European Firm Has Net