Question: Zapata Auto Parts the Mexican affiliate of American Diversified Inc

Zapata Auto Parts, the Mexican affiliate of American Diversified, Inc., had the following balance sheet on January 1:

The exchange rate on January 1 was Mex$8,000 = $1.
a. What is Zapata’s FASB 52 peso translation exposure on January 1?
b. Suppose the exchange rate on December 31 is Mex$12,000. What will be Zapata’s translation loss for the year?
c. Zapata can borrow an additional Mex$15,000 (in millions).
What will happen to its translation exposure if it uses the funds to pay a dividend to its parent? If it uses the funds to increase its cashposition?

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  • CreatedJune 27, 2014
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