Question

please answer all questions listed and show work

Problems (5 points each): please calculate the loss/gain resulting from the change in the exchange rate 1) Calculate the impact to a European subsidiary of a U.S. firm that has net exposed assets of €750,000, and the euro drops in value fr $1.30/euro to $1.20/€ 3) What is the impact to a British subsidiary of a European firm has net exposed assets of £125,000, and the pound increases in value from €1.40/£to €1.44/£, the European firm has a translation: Essays (10 points each) Please read the statement, identify the problem that MNC would face in operating in a global environment and make recommendations to remedy the problem 1. The Describe the two methods for the translation of foreign subsidiary financial statements into the parent company's consolidated statements. Identify when each technique should be used and the major advantage(s) of each 2. There are as many different approaches to foreign exchange transaction exposure management as there are firms and no real consensus exists regarding the best approach. List and discuss three different exposures you can hedge and three different types of hedges

Answer 1

Answer:

1)

Given

Net Asset =E750000

Drop in Euro price from $1.3/E to $1.2/E

Since euro price has declined and doller appreciated so Loss for the US firm = 750000*(1.30-1.20)=$75000

3)

Net Asset =L125000

increase in pound price from L1.40/E to L1.44/E

Since pound price has increased and euro depreciated so gain for the European firm = 125000*(1.44-1.40)=$5000