A French company (M) is preparing its consolidated financial statements. It holds 100% of the share capital of a subsidiary (S) located in England. It was bought 325 million euros by the French company. There has been no capital increase since then. Sales Cost of goods sold Other operating expenses Interest expenses Income taxes Profit Income statement $ (in millions of GBP) 690 285 180 135 20 70 Balanced sheet - S (in millions of GBP) Property, plant and equipment 410 Share capital 250 Inventories 55 Net profit 70 Receivables Cash and Cash equivalent 90 Liabilities 280 45 600 600 Average exchange rate: 1GBP 1,20 EUR Current exchange rate at the reporting date: 1 GBP 1,25 Euros Property, plant and equipment Balanced sheet - M (in millions of EUR) 930 Share capital 1125 Investment 325 Retained earnings 300 Inventories 170 Net profit 100 Receivables 220 Liabilities 315 Cash and Cash equivalent 195 1 840 1 840 1. Convert the subsidiary's financial statements into the reporting currency. 2. What is the amount of the translation adjustment? What does it mean? 3. Establish the consolidated balance sheet of the group (M+F) on 31st December N. 4. According to you, the parent company will have to hedge the translation exposure regarding the English subsidiary, in the future. Demonstrate the impact a currency put option (amount: 250 000 000 , maturity: year N+1, exercise price 0.77, premium: 0.30%) purchased on 25th November N, would have had on the consolidated financial balance sheet. Exchange rate on 25th November: 1 EUR = 0.77 GBP