If the British subsidiary of a European firm has net exposed assets of £250,000, and the pound increases in value from 1.40/£ to €1.45/£, the European firm has a translation ________.
A)gain of €25,000
B)loss of €25,000
C)gain of £25,000
D)loss of £25,000

Question

Quizplus · Accepted Answer

A translation loss occurs when the value of the foreign subsidiary's net assets decreases due to fluctuations in exchange rates. In this scenario, the pound has strengthened, meaning it now takes fewer pounds to equal €1. Therefore, the value of the net assets in euros has decreased, resulting in a translation loss of €25,000 for the European firm.

If the British Subsidiary of a European Firm Has Net