Reference no: EM13871757

Consider the balance sheet of a U.S. firm exporting to Europe. Euro- denominated accounts have been translated into U.S. dollars at the current exchange rate.

Cash (in $s)	$40,000	Wages payable (in $s)	$40,000
Accts receivable (in $s)	$30,000	Accts payable (in $s)	$70,000
Accts receivable (in s)	$60,000	Bank note due (in s)	$10,000
Inventory (in $s)	$20,000	Total current liabilities	$120,000
Total current assets	$150,000	Bank note (in s)	$50,000
Plant and equipment	$50,000	Common equity	$30,000
Total assets	$200,000	Total liabilities & equity	$200,000

This firm considers inventory to be a real, rather than a monetary, asset.

a. What is the dollar value of the firm's monetary assets? What is the dollar value of the firm's monetary liabilities? What is the dollar value of net monetary assets?

b. What is the dollar value of the firm's monetary assets exposed to currency risk? Exposed monetary liabilities? Net exposed monetary assets (exposed monetary assets less exposed monetary liabilities)?

c. This firm has a bank note denominated in euros. Does this foreign currency liability increase or reduce the firm's net monetary exposure to currency risk? Explain.

d. Is the operating performance of a U.S. exporter such as this likely to be improved or worsened by a real appreciation of the euro? Explain.