Transaction exposure problem. Suppose firm ABC enters into a transaction to sell €800,000 worth of equipment to a French firm when the exchange rate is $1.35/€. The French firm will pay in euros in 60 days. At the time of payment, the exchange rate is $1.28/€. What are the consequences of this transaction of ABC’s financial statements?
What will be an ideal response?
At sale – Account Receivable = €800,000 * $1.35/€ = $1,080,000.
At collection – Amount Received = €800,000 * $1.28/€ = $1,024,000.
Firm ABC will report a $56,000 transaction loss in its income statement.
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