Question 15 9 pts Everhart Co. has substantial translation exposure in Taiwanese subsidiaries. The vice president of finance at Everhart is concerned about translation exposure as he believes that the stock price is highly dependent on reported consolidated earnings, which are dependent on the exchange rates at which the earnings are translated. Consequently, the VP of finance tells the treasurer to hedge the translation exposure by selling a Taiwanese dollar (TWD) forward. 1. Explain why the concerns of the VP of finance about the translation exposure of Everhart Co. are justified? 4P 2. Explain how selling Taiwanese dollar forwards can offset the adverse impact of translation exposure on the consolidated earnings if the TWD depreciates over the time period of concern. 3P 3. Name one major requirement (at the end of the year) needed to successfully execute this hedging strategy. 2P

Everhart Co, has substantial translation exposure in Taiwanese subsidiaries. The vice president of finance at Everhart is concerned about translation exposure as he believes that the stock price is highly dependent on reported consolidated earnings, which are dependent on the exchange rates at which the earnings are translated. Consequently, the VP of finance tells the treasurer to hedge the translation exposure by selling a Taiwanese dollar (TWD) forward. 1. Explain why the concerns of the VP of finance about the translation exposure of Everhart Co. are justified? 4P 2. Explain how selling Taiwanese dollar forwards can offset the adverse impact of translation exposure on the consolidated earnings if the TWD depreciates over the time period of concern. 3P 3. Name one major requirement (at the end of the year) needed to successfully execute this hedging strategy. 2P