Hippocrates hedges its translation exposures (A). Hippocrates Inc. is a leading U.S.-based manufacturer of medical imaging systems such as MRI machines with headquarters offices and manufacturing facilities in St. Paul, Minnesota.

Its Mexican manufacturing and assembling affiliate, domiciled in Mexico City, services the entire Latin American market. The French affiliate is domiciled in Paris and services the entire euro-zone area. The two affiliates’ balance sheets are prepared in Mexican pesos (MXN) and euros (€), respectively (see Exhibit 17. 9).

Current exchange rates are MXN 12. 5 = US$1 = €0.80.

a. What is Hippocrates’ translation exposure to the Mexican peso and the euro, taking into account intracorporate transactions?

b. Would denominating in US$ all intracorporate transactions between sister affiliates or between affiliates and their parent materially affect Hippocrates’

translation exposures? How?

Data from Exhibit 17. 9

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EXHIBIT 17.9 Nonconsolidated Balance Sheet for Hippocrates Inc., December 31, 2014 (in '000 Currency Units) Parent Mexican Affiliate French Affiliate Assets Cash $ 1,500 MXN 1,420 1,200 Accounts receivable 2,500a,b 2,800 1,500 Inventory 5,000 6,200 2,500 Property, plant, and equipment 2,400 Goodwill 3,600 Net fixed assets 12,000 11,200 5,600 Total assets $27,000 MXN 21,620 10,800 Liabilities and Net Worth Accounts payable $ 3,000 MXN 2,500 1,700 Notes payable 4,000 4,200 2,300h Long-term debt 9,000 7,000 2,300 Common stock Retained earnings Total liabilities and net worth 5,000 4,500 2,900 6,000 3,420 1,600 $27,000 MXN 21,620 10,800 The parent firm is owed MXN 1,320 by the Mexican affiliate. This sum is included in the parent's accounts receivable. The remainder of the parent's accounts receivable is denominated in dollars, and the remainder of the Mexican affiliate's accounts payable is denominated in pesos. "The French affiliate owes its parent 1,000. Notes payable are US$ denominated. The Mexican affiliate has MXN 800 of accounts receivable (peso-denominated) owed by its sister French affiliate.