Assessing Translation Exposure Milwaukee Co. has an Australian subsidiary that earned 40 million Australian dollars (AS) this year. Little Rock Co. has an Australian subsidiary that earned A$S30 million this year. Milwaukee’s subsidiary plans to reinvest its earnings in Australia, whereas Little Rock’s subsidiary will remit its earnings to the U.S. parent. Cincinnati Co. does not have an Australian subsidiary, but it received revenues of A$50 million this year from exporting products to Australia. All three companies have the same total revenues and total earnings levels (when considering their U.S. business as well), are the same size, and do not have any other international business. Which company is subject to the highest 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 48QA
Textbook Problem

Assessing Translation Exposure Milwaukee Co. has an Australian subsidiary that earned 40 million Australian dollars (AS) this year. Little Rock Co. has an Australian subsidiary that earned A$S30 million this year. Milwaukee’s subsidiary plans to reinvest its earnings in Australia, whereas Little Rock’s subsidiary will remit its earnings to the U.S. parent. Cincinnati Co. does not have an Australian subsidiary, but it received revenues of A$50 million this year from exporting products to Australia. All three companies have the same total revenues and total earnings levels (when considering their U.S. business as well), are the same size, and do not have any other international business. Which company is subject to the highest degree of translation exposure? Briefly explain.

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