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Chapter 21

Q. 21.FSE.8

a. Portland Co. is a U.S. firm with no foreign subsidiaries. In addition to much business in the United States, its exporting business results in annual cash inflows of 20 million euros. Briefly explain how Portland Co. is subject to translation exposure (if at all).
b. Topeka Co. is a U.S. firm with no exports or imports. It has a subsidiary in Germany that typically generates earnings of 10 million euros each year, and none of the earnings are remitted to the United States. Briefly explain how Topeka Co. is subject to translation exposure (if at all).


Verified Solution

a. Portland Co. is not subject to translation exposure since it has no foreign subsidiaries.
b. Topeka’s consolidated earnings will increase if the euro appreciates against the dollar over the reporting period.