If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound drops in value from €1.40/£ to euro 1.30/£, the European firm has a translation ________.
A)gain of €12,500
B)loss of €12,500
C)loss of £12,500
D)gain of £12,500

Question

Quizplus · Accepted Answer

The translation gain is calculated as the change in the exchange rate multiplied by the net exposed assets. In this case, the change in the exchange rate is €0.10 (1.40 - 1.30), and the net exposed assets are £250,000. Therefore, the translation gain is €0.10 x £250,000 = €25,000.

If the British Subsidiary of a European Firm Has Net