How could park avoid a negative translation adjustment

Reference no: EM132676544

Assume instead that Sand Company is located in Germany and uses the Euro for its currency. Park's CFO wishes to determine the effect that a change in the value of the Euro would have on the financial results. To help assess the foreign currency exposure associated with the investment in Sand, the CFO requests assistance in comparing results under various exchange rate fluctuations.

Question a) Using the exchange rates presented under the three different scenarios, translate Sand's 12/31/2020 trial balance. The Euro is Sand's functional currency.

Question b) Provide a risk assessment for Park regarding how the change in exchange rate could impact net income, cash flows from dividends, and the debt-to-equity ratio. Below your calculations, discuss your findings. Make sure you address the following:

Did the change in rate impact the figures consistently?
When should Park hedge their Euro exposure (when the rate is increasing or decreasing)?
How could Park avoid a negative translation adjustment reported in other comprehensive income?
What are some other strategies Park could use based on your hedging knowledge.

Reference no: EM132676544

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