Consider an MNC based in Canada with manufacturing activities in Japan.The result of a change in the ¥/$ exchange rate on the assets and liabilities of the consolidated balance sheet is: Exposed assets $\quad ¥ 700,000,000$
Exposed liabilities $\quad ¥ 500,000,000$ Ignoring transaction exposure in the yen,the translation exposure will indicate a possible need for a "balance sheet hedge" of:
A) ¥200,000,000 less liabilities denominated in yen.
B) ¥200,000,000 more assets denominated in yen.
C) ¥200,000,000 of net exposure denominated in yen.
D) None of these.

Question

Quizplus · Accepted Answer

Translation exposure refers to the risk that a company's assets, liabilities, or income will change in value due to exchange rate changes when they are denominated in a foreign currency. In this case, the company has ¥700,000,000 in exposed assets and ¥500,000,000 in exposed liabilities. The net exposure is the difference between these amounts, which is ¥200,000,000. This indicates the company has a net translation exposure of ¥200,000,000 denominated in yen, suggesting a potential need for a balance sheet hedge to manage this exposure.

Consider an MNC Based in Canada with Manufacturing Activities in Japan.The