FRA Book p.216 Q12 What would be the balance sheet exposure to translation effects if the functional currency were changed. (The method is being changed from temporal to current method) How come you don’t need to translate the figures and just simply calculate Total asset - Total Liabilities?
think about it… Current rate method - Exposure = Net Assets - Net Liabs.
Because that would be the same since everything gets translated at current rate. Your exposure is A-L, level of exposure is same.
under the current rate: balance sheet exposure = net assets (this just a formula you have to memorize) net assets = total assets - total liabilities total assets = 400 total liabilities = 252 net assets = 148 trick question: they ask for the C$ balance sheet exposure, you do not make any currency adjustments