A U.S.parent firm,as result of its business activities in Germany,has a net exposure of €1,000,000.The consolidated reports were prepared at the year-end for the last two successive years.If the exchange rates on these reporting dates changed from $1.00 = €1.10 to $1.00 = €1.00,then the translation exposure report will indicate a "reporting currency imbalance" of
A)$90,910.
B)$0.
C)-$90,910.
D)none of the options

Question

Quizplus · Accepted Answer

The exchange rate changed from $1.00 = €1.10 to $1.00 = €1.00, meaning the euro appreciated against the dollar. The net exposure of €1,000,000 would have been valued at $909,091 (1,000,000 / 1.10) initially and then at $1,000,000 (1,000,000 / 1.00) later. The difference is $1,000,000 - $909,091 = $90,909, rounded to $90,910.

A USparent Firm,as Result of Its Business Activities in Germany,has a a Net