If the European subsidiary of a U.S. firm has net exposed assets of €500,000, and the euro drops in value from $1.40/euro to $1.30/€ the U.S. firm has a translation ________.

Question

Quizplus · Accepted Answer

The euro dropped in value, which means it takes more euros to equal one U.S. dollar. This results in a translation loss for the U.S. firm since the net exposed assets of the European subsidiary are in euros.

To calculate the translation loss, we need to take the difference in exchange rates ($1.40 - $1.30 = $0.10) and multiply it by the amount of net exposed assets in euros (€500,000).

Translation Loss = €500,000 x $0.10/euro = $50,000

Therefore, the U.S. firm has a translation loss of $50,000.

If the European Subsidiary of a U