An Australian firm has a subsidiary based in the U$.$S$.$ which is exposed to translation exposure. The parent company has estimated that its subsidiary will report $2\mathrm{.}5$ million USD in earnings in the upcoming

year and it had hedged those earnings by selling $2\mathrm{.}5$ million USD forward. The AUD$/$USD exchange rate falls by $10\%$ over the year and the result is a$($n$)$ movement in the company's hedge.

favourable

adverse