Assessing Translation Exposure
Response to the following problem:
Assume the euro's spot rate is presently equal to $1.00. All of the following firms are based in New York and are the same size. While these firms concentrate on business in the United States, their entire foreign operations for this quarter are provided here. Company A expects its exports to cause cash inflows of 9 million euros and imports to cause cash outflows equal to 3 million euros. Company B has a subsidiary in Portugal that expects revenue of 5 million euros and has expenses of 1 million euros. Company C expects exports to cause cash inflows of 9 million euros and imports to cause cash outflows of 3 million euros, and will repay the balance of an existing loan equal to 2 million euros. Company D expects zero exports and imports to cause cash outflows of 11 million euros. Company E will repay the balance of an existing loan equal to 9 million euros. Which of the five companies described here has the highest degree of translation exposure?