FSA: If the subsidiary has a liability exposure on its balance sheet,

CFA Level II
#1

If the subsidiary has a net liability on its balance sheet (monetary assets are less than monetary liabilities), and the subsidiary’s currency is weakening against the parent’s currency, WHY WOULD THIS RESULT IN A POSITIVE TRANSLATION ADJUSTMENT?

#2

Because the tranlated liability has decreased in value due to the decreasing value of the currency, I just did the same q!

#3

Thanks for responding. I just want to be sure I get this correctly. If the translated liability decreases in value due to currency translation, this results in a positive translation adjustment…is that correct?

#4

Yes, that is correct. If you have a liability, and it decreases for any reason, you are better off (ie, more equity).

#5

I just break it down as such: If I bought an item off you for $10 when the FX rate was $2/1, and the currency goes to 1/1 I would owe you less .