Posted: July 24th, 2016

What is the importance of exchange rates?

A US based MNC has a subsidiary in France (local currency, euro). The balance sheet and income statment of the subsidiary follow. On 12/31/09, the exchange rate is US $1.20/euro. Assume that the local (euro) figures for the statemtns remain the same on 12/31/10. Calculate the US dollar translated figures for the two ending time periods, assuming that between 12/31/09 and 12/31/10 the euro has appreciated agains the US dollar by 6%.

Translation of Income Statement
12/31/09 12/31/10
Euro US$ US$
Sales 30,000.00
Cost of goods sold 29,750.00
Operating profits 250.00

Translation of Balance Sheet
12/31/09 12/31/10
Assets Euro US$ US$
Cash 40.00
Inventory 300.00
Plant & equipment (net) 160.00
Total 500.00

Liabilities & Stockholders Equity
Debt 240.00
Paid in capital 200.00
Retained earnings 60.00
Total 500.00