Toyota has exposed assets of ¥7 billion and exposed liabilities of ¥5 billion. D

Question

Toyota has exposed assets of ¥7 billion and exposed liabilities of ¥5 billion. During the year, the yen appreciates from ¥110/$ to ¥80/$.

a. What is Toyota's net translation exposure at the beginning of the year in yen? In dollars?

b. What is Toyota's translation gain or loss from the change in the yen's value?

c. At the start of the next year, Toyota adds exposed assets of ¥1.5 billion and exposed liabilities of ¥2 billion. During the year, the yen depreciates from ¥80/$ to ¥115/$. What is Toyota's translation gain or loss for this year?

d. What is Toyota’s total translation gain or loss for the two years?

Original work please.

Explanation / Answer

a) The net translation exposure of Toyota at the beginning of the year = ¥2 billion (¥7 billion - ¥5 billion). When this is converted into dollars, it yields a translation exposure of $18,181,818 (2 billion/110).

b) In terms of the end-of-year exchange rate, Toyota's translation exposure = $25,000,000 (2 billion/80).This results in a net translation gain for the year of $6,818,182. ($25,000,000 - $18,181,818).

c) New translation exposure at the beginning of the year is ¥1.5 billion (¥2 billion + ¥1.5 billion - ¥2 billion).

The translation loss for the year = $5,706,521.74 (1,500,000,000/80–1,500,000,000/115)

For the two year period the translation gain of 6,818,182-5,706,521.74)= $1,111,660.26

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