If the European subsidiary of a U.S. firm has net exposed assets of €500,000, and the euro increases in value from $1.30/€ to $1.35/€ the U.S. firm has a translation ________.
A)gain of $25,000
B)loss of $25,000
C)gain of $525,000
D)loss of €525,000

Question

Quizplus · Accepted Answer

To calculate the translation gain or loss, we need to multiply the net exposed assets of the European subsidiary by the change in the exchange rate:
€500,000 x ($1.35/€ - $1.30/€) = €500,000 x $0.05/€ = $25,000

Since the U.S. firm is the parent company, the gain is expressed in dollars. Therefore, the correct answer is A) gain of $25,000.

If the European Subsidiary of a U