Ă‚Â Cairo Ingot, Ltd. Cairo Ingot, Ltd., is the Egyptian subsidiary of Trans-Mediterranean Aluminum, a British multinational that fashions automobile engine blocks from aluminum. Trans-MediterraneanĂ˘â‚¬â„˘s home reporting currency is the British pound. Cairo IngotĂ˘â‚¬â„˘s December 31 balance sheet is shown below. At the date of this balance sheet the exchange rate between Egyptian pounds and British pounds sterling was Ă‚ÂŁE5.50/UKĂ‚ÂŁ.
What is Cairo IngotĂ˘â‚¬â„˘s contribution to the translation exposure of Trans-Mediterranean on December 31, using the current rate method? Calculate the translation exposure loss to Trans-Mediterranean if the exchange rate at the end of the following quarter is Ă‚ÂŁE6.00/Ă‚ÂŁ. Assume all balance sheet accounts are the same at the end of the quarter as they were at the beginning.
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