1. Suppose that at the start and at the end of the year, Belford U.K., the British subsidiary of Bertrand, a Eurozone-based company, has current assets of £1 million, noncurrent assets of £2 million, and current liabilities of £1 million. Belford has no long-term liabilities.

(a) What is Belford U.K.’s translation exposure under the current/noncurrent, monetary/nonmonetary, temporal, and current rate methods?

(b) Assuming the British pound is the functional currency, if the pound depreciates during the year from

€1.50 to €1.30, what will be the translation gain (loss)

to be included in the equity account of its parent, Bertrand?

(c) Redo part b assuming the euro is the functional currency. Included in current assets is inventory of £0.5 million. The historical exchange rates for inventory and noncurrent assets are €1.45 and €1.65, respectively.
If the euro is the functional currency, where does Belford U.K.’s translation gain or loss show up on Bertrand’s financial statements?