Question: Forop Ltd is a foreign subsidiary of Domop Inc Domop s
Forop Ltd. is a foreign subsidiary of Domop Inc. Domop’s accounting exposure to exchange rate changes when translating the accounts of Forop is a substantial net liability exposure. Domop’s management expects the foreign currency in which Forop operates to increase in value relative to the Canadian dollar; such an increase will result in a large translation loss. The management of Domop proposes to enter into a forward contract to receive an equivalent amount of foreign currency to hedge against the potential translation loss. Would you recommend that Domop’s management follow their proposed course of action? Explain.
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