Multinational Financial Management

Understanding translation on Income from subsidiary Assume we are a U.S. multinational with a subsidiary in Japan. The subsidiary is self-sustaining with sales and costs in Japanese yen. It is a profitable subsidiary. Assume last year the subsidiary reported the following results when the average yen exchange rate was 90/$ Units Yen Dollars Revenues Costs Profit 900 900 900 Price/Cost/Profit per unit 100 \80 20 90,000 72,000 \ 18,000 Assume this year the subsidiary reported the following results with the average yen exchange rate was 110/$. Units Dollars Price/Cost/Profit Yen per unit 99 77 Revenues Costs Profit 1000 1000 1000 \ 99,000 77,000 22,000 22 Assume you need to explain these results to your shareholders in Management's Discussion and Analysis. How might you explain the results