Question 1:

SupposeanAmericansubsidiaryof UK companyshowed:

Current assets ofdollar 5million;

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) inpound if dollaris the functional currency?

Question 2:

TheMexican subsidiaryof US firm has current assets of Peso 1mn, long term assets of Peso 4mn, current liabilities of Peso 400,000 andlong termliabilities 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) indollar if pesois the functional currency?

Question 3:

The USsubsidiaryof 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) inKorean Won if dollaris the functional currency?

Lecture 10

Use the following information to answer question 1 to 3:

Suppose that Boeing (US company)soldairplanetoLufthansa(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:

Question4:

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

Question5:

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

Question6:

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

Use the following information to answer question 4 to 6:

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 thecurrency risk beyond a neutral zone.

Question7:

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

Question8:

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

Question9:

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