Assessing Translation Exposure Quartz Co. has its entire operations in Miami, Florida, and is an exporter of products to eurozone countries. All of its earnings are derived from its exports. The exports are denominated in euros. Reed Co., a U.S.-based firm, is approximately the same size as Quartz Co. and generates about the same amount of earnings in a typical year. It has a subsidiary in Germany that typically generates 40 percent of its total earnings. All earnings are reinvested in Germany and therefore are not remitted. The rest of Reed’s business is in the United States. Which company has a higher degree of translation exposure? Briefly explain.

FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698
FindFind

International Financial Management

14th Edition
Madura
Publisher: Cengage
ISBN: 9780357130698

Solutions

Chapter 10, Problem 44QA
Textbook Problem

Assessing Translation Exposure Quartz Co. has its entire operations in Miami, Florida, and is an exporter of products to eurozone countries. All of its earnings are derived from its exports. The exports are denominated in euros. Reed Co., a U.S.-based firm, is approximately the same size as Quartz Co. and generates about the same amount of earnings in a typical year. It has a subsidiary in Germany that typically generates 40 percent of its total earnings. All earnings are reinvested in Germany and therefore are not remitted. The rest of Reed’s business is in the United States. Which company has a higher degree of translation exposure? Briefly explain.

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