Question 1:

Suppose an American subsidiary of UK company showed:

Current assets of dollar 5 million;

Current liabilities of dollar 4.1 million;

Total assets = dollar 7.2 million;

Total liabilities = dollar 8.2 million

If the dollar deprecated during that year from 0.7538 to 0.7500.

Under FASB-52, what is the translation gain (loss) in pound if dollar is the functional currency?

a. 0

b. 7,220 gain

c. 3,800 gain

d. 3,420 loss

Question 2:

The Mexican subsidiary of US firm has current assets of Peso 1mn, long term assets of Peso 4mn, current liabilities of Peso 400,000 and long term liabilities of Peso 1.5mn. If the Peso appreciated during a year from $0.05249 to $0.05312. Under FASB-52, what is the translation gain (loss) in dollar if peso is the functional currency?

a. $ 0

b. $ 1,575 loss

c. $ 378 gain

d. $ 1,953 gain

Question 3:

The US subsidiary of Korean firm has current assets of $3.1mn, long term assets of $2mn, total liabilities of $3.5mn. If dollar depreciated during a year from Won1115.88/$ to Won1100/$. Under FASB-52, what is the translation gain (loss) in Korean Won if dollar is the functional currency?

a. 0

b. Won 6,352,000 loss

c. Won 25,408,000 loss

d. Won 38,112,000 gain

Lecture 10

Use the following information to answer question 4-6

Suppose that Boeing (US company) sold airplane to Lufthansa (German company) on credit and invoiced 20 million payable in six months. Two companies agree to share the currency risks. In the Price Adjustment Clause, the neutral zone is $1.14/ - $1.26/, the base rate is $1.2/; and both parties will share the currency risk beyond a neutral zone. How much each party have to pay/receive if:

Question 4:

How much each party have to pay/receive if the exchange rate is $1.17/

a. Boeing receives $20 million; Lufthansa pays 17.094 million.

b. Boeing receives $23.4 million; Lufthansa pays 20 million.

c. Boeing receives $20 million; Lufthansa pays 20 million.

d. Boeing receives $24 million; Lufthansa pays 20 million.

Question 5:

How much each party have to pay/receive if the exchange rate is $1.08/

a. Boeing receives $21.6 million; Lufthansa pays 20 million.

b. Boeing receives $23.4 million; Lufthansa pays 21.67 million.

c. Boeing receives $24 million; Lufthansa pays 20 million.

d. Boeing receives $22.2 million; Lufthansa pays 20.56 million.

Question 6:

How much each party have to pay/receive if the exchange rate is $1.32/

a. Boeing receives $24 million; Lufthansa pays 18.18 million.

b. Boeing receives $24.6 million; Lufthansa pays 18.64 million.

c. Boeing receives $26.4 million; Lufthansa pays 20 million.

d. Boeing receives $25.8 million; Lufthansa pays 19.55 million.

Use the following information to answer question 7-9

Ford purchased electric motors from Nidec (Japanese company) and was billed 200 million payable in three months. Two companies agree to share the currency risks. In the Price Adjustment Clause, the neutral zone is 115.38/$ - 129.42/$, the base rate is 122.4/$ and both parties will share the currency risk beyond a neutral zone.

Question 7:

How much each party have to pay/receive if the exchange rate is 117.21/$

a. Ford pays 200 million; Nidec received $1.706 million.

b. Ford pays $1.706 million; Nidec receives 200 million.

c. Ford pay 200 million; Nidec received $1.634 million.

d. Ford pays $1.634 million; Nidec received 200 million.

Question 8:

How much each party have to pay/receive if the exchange rate is 111.42/$

a. Ford pays 200 million; Nidec receives $1.634 million.

b. Ford pays $1.634 million; Nidec receives 200 million.

c. Ford pays 196.55 million; Nidec receives $1.764 million.

d. Ford pays $1.764 million; Nidec received 196.55 million.

Question 9:

How much each party have to pay/receive if the exchange rate is 132.12/$

a. Ford pay 202.01 million; Nidec receives $1.529 million.

b. Ford pays $1.529 million; Nidec received 202.01 million.

c. Ford pay 213.51 million; Nidec receives $1.616 million.

d. Ford pay $1.616 million; Nidec receives 213.51 million.