Cuzco Carpets, S.A., is the Peruvian subsidiary of the U.S. firm, Carolina Fabrics, Inc. Cuzco Carpets manufactures high-quality carpets from llama wool and sells its finished carpets to its U,S. parent. The rate of exchange between the Peruvian new sole and the dollar is NS3.2000/\$. This is also the historic rate at which fixed assets and inventory were purchased and at which capital stock was issued. Unconsolidated balance shects for both parent and subsidiary are as follows:

a. Dees Carolina Fabrics have any transaction exposure? If so, where and how much? What would be the effect should the new sol devalue from NS3,2/\$ to NS4_0/S?

b. Doses Garolina Fabrics have any translation exposure? If so, where and how much? What would be the effect should the new sol devalue from NS3.2/\$ to NS4.0/\$?

c. Prepare consolidated balance shects for Carolina Fabrics and Cuzco Carpet, both before and after a devaluation from NS3,2/S to NS4.0/S. Use the current-rate method.

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Assets Cash Carolina Fabrics $2,880,000 Cuzco Carpets NS 32,000,000 Accounts receivable Inventory Net plant & equipment 5,600,000 40,000,00000 7,320,000 48,000,000 24,000,000 60,000,000 Investment in Cuzco Carpets 14,200,000 $54,000,000 NS180,000,000 Liabilities and Net Worth Accounts payable $10,000,000 NS36,000,000 Accrued wages 6,000,000 34,560,000 Long-term debt 18,000,000 Capital stock 14,000,000 64,000,000 3,840,000 Retained earnings 6,000,000 41,600,000 $54,000,000 NS180,000,000