Zapata Auto Parts, the Mexican affiliate of American Diversified, Inc., had the following balance sheet on January

Question:

Zapata Auto Parts, the Mexican affiliate of American Diversified, Inc., had the following on January 1:

The exchange rate on January 1 was Mex$8,000 = $1.
a. What is Zapata€™s FASB 52 peso translation exposure on January 1?
b. Suppose the exchange rate on December 31 is Mex$12,000. What will be Zapata€™s translation loss for the year?
c. Zapata can borrow an additional Mex$15,000 (in millions).
What will happen to its translation exposure if it uses the funds to pay a dividend to its parent? If it uses the funds to increase its cashposition?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...