Minicase10 Article

Mini Case 15




How important is translation

exposure to a multinational

venture, and how may well

translation exposure show up

in a company's a large number of foreign



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LaJolla Engineering: Case Questions

1 . Do you believe Meaghan O'Connor should spend time

and assets attempting to take care of translation

losses, what a large number of consider simply an accounting


2 . How might you characterize or structure your analysis

of each and every of the individual country-threats to LaJolla?

What particular features of their individual complications

seem to be intertwined with money issues?

a few. What might you recommend that Meaghan do?


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LaJolla Anatomist Services

• Meaghan O'Connor was CFO of LaJolla Engineering's Engineering Equipment Split in early 2004

• Meaghan had been promoted only recently to CFO of the EE Division, and today discovered the lady had some large difficulties

• This division was considered the " Big Iron” within the generally service-based executive services firm; Meaghan, therefore , had to manage sizable capital asset purchases of a multitude of countries

• Although many companies, which includes LaJolla, are more comfortable with suffering routine foreign exchange gains/losses, it was quite unusual for those fx deficits to be arising from translation

• LaJolla's translation gains/losses

• Each of the international subsidiaries which Meaghan was focusing on had been local forex functional relating to translation practices in the United States; this resulted in each of the overseas subsidiaries' main currency driving a car its financial and organization results was your local forex -- the Jamaican money, the Philippine peso, and the Venezuelan bolivar

• If a foreign additional is local currency functional, any currency gains and losses arising from the translation of the subsidiary's balance sheet in the currency from the parent organization for debt consolidation purposes can be accumulated in the consolidated stability sheet's value account range item known as the " cumulative translation adjustment”


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Translation Losses

Exhibit B Mexican Pesos per U. S. Dollar

Exhibit A Jamaican Dollars per U. S. Dollars

Exhibit C Venezuelan Bolivars per U. S. Money

All three values -- the Jamaican money, the

Mexican peso, as well as the Venezuelan bolivar –

acquired fallen in value up against the dollar extremely

rapidly in the past three 12 months period.

This fact by itself would produce substantial

translation losses pertaining to LaJolla arising from the

gross annual consolidation of foreign subsidiaries

with the financial results of the U. S. parent



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