If the Hong Kong subsidiary of a U.S.firm has net exposed assets of HK$ 500,000 and the HK$ changes in value from US$0.50/HK$ toUS$0.30/HK$,the U.S.firm will have a translation ________.
A) loss HK$100,000
B) loss US$100,000
C) gain US$100,000
D) gain US$ 50,000

Question

Quizplus · Accepted Answer

The U.S. firm will experience a translation loss because the value of the Hong Kong dollar has decreased relative to the U.S. dollar. Initially, HK$500,000 was worth US$250,000 (500,000 * 0.50). After the change, it is worth US$150,000 (500,000 * 0.30). The loss in U.S. dollar terms is US$100,000 (250,000 - 150,000).

If the Hong Kong Subsidiary of a U