What is the dollar value of the firms monetary assets

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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.

Reference no: EM13871757

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