Question
In: Finance
Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of...
Vermont Co. has one foreign subsidiary. Its translation exposure is directly affected by each of the following, except: a. the proportion of business conducted by the subsidiary. b. the interest rate in the country of the subsidiary. c. the exchange rate movements of the subsidiary's currency. d. its accounting method.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Most countries specify the translation method to be used by a foreign subsidiary based on its...
Most countries specify the translation method to be used by a
foreign subsidiary based on its business operations or the
functional currency. Explain both subsidiary characterization
criteria and the one adopted in the United States.
Distinguish between the following types of foreign exchange exposure: Transaction exposure Economic exposure Translation exposure Given...
Distinguish between the following types of foreign exchange
exposure:
Transaction exposure
Economic exposure
Translation exposure
Given 1 example for each.
Explain how a firm can hedge its translation exposure and the limitations of hedging translation exposure.
Explain how a firm can hedge its translation exposure
and the limitations of hedging translation exposure.
1. According to text, the valuation of an MNC with foreign subsidiaries is directly affected by...
1. According to text, the valuation of an MNC with foreign
subsidiaries is directly affected by exchange rate fluctuations,
foreign political conditions and foreign economic conditions.
a. Explain how each of the above 3 factors can affect the
valuation of an MNC with foreign subsidiaries.
Discuss the causes of balance sheet or translation exposure to foreign exchange risk. Distinguish between balance...
Discuss the causes of balance sheet or translation exposure to
foreign exchange risk. Distinguish between balance sheet exposure
and transaction exposure. Provide examples to illustrate your
points.
A, What factors create a balance sheet (or translation) exposure to foreign exchange risk? How does...
A, What factors create a balance sheet (or translation) exposure
to foreign
exchange risk? How does balance sheet exposure compare with
transaction exposure? (150 words)
B,What is hedge accounting? (150 words)
An Australian firm uses a forward contract to hedge all of its translation exposure. Assume that...
An Australian firm uses a forward contract to hedge all of its
translation exposure. Assume that the firm overestimated what its
foreign earnings would be and assume that the foreign currency
appreciated over the year. The firm would generate a transaction
loss.
Nelson, Inc. hedges 50% of their translation exposure one calendar quarter in advance, and rolls the...
Nelson, Inc. hedges 50% of their translation exposure one
calendar quarter in advance, and rolls the contracts when they
mature. Currently 1st quarter net income is projected to
be 125 million Canadian dollars. The current spot rate is .98 US
dollars per Canadian dollar, and the forward rate to March 31,
2011, the end of 1st quarter, is .987 US dollars per
Canadian dollar. On 3/31/2011 the spot rate is now 1.045 US dollars
per Canadian dollar.
(a) Explain how...
Ginvold Co. began operating a subsidiary in a foreign country on January 1, 2008 by acquiring...
Ginvold Co. began operating a subsidiary in a foreign country on
January 1, 2008 by acquiring all of the common stock for §50,000.
This subsidiary immediately borrowed §120,000 on a five-year note
with ten percent interest payable annually beginning on January 1,
2008. A building was then purchased for §170,000. This property had
a ten-year anticipated life and no salvage value and was to be
depreciated using the straight-line method. The building was
immediately rented for three years to a...
Translation and Remeasurement of Account Balances U.S. Industries has a subsidiary in Switzerland. The subsidiary’s financial...
Translation and Remeasurement of Account Balances
U.S. Industries has a subsidiary in Switzerland. The
subsidiary’s financial statements are maintained in Swiss francs
(CHF). Exchange rates ($/CHF) for selected dates are as
follows:
January 1, 2018
$1.02
November 30, 2020
$1.08
January 1, 2019
1.04
December 31, 2020
1.09
Average for 2020
1.06
The following items appear in the subsidiary’s trial balance at
December 31, 2020:
1. Cash in bank, CHF4,000,000.
2. Inventory, CHF3,000,000. The inventory was acquired on
November 30,...
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