Balance sheet hedging Gateaux Antoinette, SA, a subsidiary of Antoinette Cakes Inc., New York, had cash of €100,000 and accounts receivable of €100,000 each on its books (or €200,000 in total) when the euro suddenly appreciated from \($1\) per euro to \($1.20.\) a Indicate what effect the revaluation would have on the translation of these assets into US dollars on the consolidated balance sheet of the US parent firm. b How could Gateaux Antoinette have acquired a “balance sheet” hedge for its cash and accounts receivable in euros prior to the revaluation (even though it benefited from the exposure in this instance)? 

Operating exposure (I) You are a French company exporting widgets to the United States from your plant in France where the widgets are produced. You sell them for dollars in the United States. Last year you sold 100,000 widgets in the United States for \($10\) a widget, converting your dollar revenues to euros at €0.9 per US dollar. Next year you expect the dollar to be worth less, €0.8, but to export 110,000 widgets to the United States. You are considering selling them at \($10\) a widget, but may reconsider the US price. 

a Are you subject to operating exposure in dollars for the next year? If so, how much? 

b What are some techniques you can use to hedge against this operating exposure in the United States?