【正文】 e2,100a845e1,163f4,108Inventory5,0001,8791,9238,802Investment in Mexican affiliatebInvestment in Canadian affiliatecNet fixed assets12,0003,3944,308 19,702 Total assets$35,465Liabilities and Net WorthAccounts payable$3,000$ 358a$1,308$ 4,666Notes payable4,000d1,2731,7697,042Longterm debt9,0002,1211,76912,890Common stock5,000bc5,000Retained earnings6,000bc6,000CTA (133) Total liabilities and net worth $35,465a$2,500,000 $400,000 (= Ps1,320,000/($)) intrapany loan = $2,100,000.b,cThe investment in the affiliates cancels with the net worth of the affiliates in the consolidation.dThe parent owes a Japanese bank 165。126,000,000. This is carried on the books as $1,200,000 (=165。126,000,000/(165。105/$)). eThe Mexican affiliate has sold on account A120,000 of merchandise to an Argentine import house. This is carried on the Mexican affiliate’s books as Ps384,466 (= A120,000 x ).fThe Canadian affiliate has sold on account W192,000,000 of merchandise to a Korean importer. This is carried on the Canadian affiliate’s books as CD312,000 (=W192,000,000/(W800/)).d. i. The transaction exposure report for Sundance, Inc. and its two affiliates is presented below. The report indicates that the Ps1,320,000 accounts receivable due from the Mexican affiliate is not also a translation exposure because this is netted out in the consolidation. However, the 165。126,000,000 notes payable of the parent is also a translation exposure. Additionally, the A120,000 accounts receivable of the Mexican affiliate and the W192,000,000 accounts receivable of the Canadian affiliate are both translation exposures.Transaction Exposure Report for Sundance Sporting Goods, Inc. andits Mexican and Canadian Affiliates, December 31, 2005AffiliateAmountAccountTranslation ExposureParentPs1,320,000Accounts ReceivableNoParent165。126,000,000Notes PayableYesMexicanA120,000Accounts ReceivableYesCanadianW192,000,000Accounts ReceivableYesd. ii. Since transaction exposure may potentially result in real cash flow losses while translation exposure does not have an immediate direct effect on operating cash flows, we will first address the transaction exposure that confronts Sundance and its affiliates. The analysis assumes the depreciation in the Canadian dollar and the Argentine austral have already taken place.The parent firm can pay off the 165。126,000,000 loan from the Japanese bank using funds from the cash account and money from accounts receivable that it will collect. Additionally, the parent firm can collect the accounts receivable of Ps1,320,000 from its Mexican affiliate that is carried on the books as $400,000. In turn, the Mexican affiliate can collect the A120,000 accounts receivable from the Argentine importer, valued at Ps384,466 after the depreciation in the austral, to guard against further depreciation and to use to partially pay off the peso liability to the parent. The Canadian affiliate can eliminate its transaction exposure by collecting the W192,000,000 accounts receivable as soon as possible, which is currently valued at CD312,000.The elimination of these transaction exposures will affect the translation exposure of Sundance MNC. A revised translation exposure report follows.Revised Translation Exposure Report for Sundance Sporting Goods, Inc. and its Mexican and Canadian Affiliates, December 31, 2005 (in 000 Currency Units)JapaneseYenMexicanPesoCanadianDollarArgentine AustralKoreanWonAssetsCash165。 0Ps 484CD 1,512A 0W 0Accounts receivable02,4041,20000Inventory06,2002,50000Fixed assets 0 11,200 5,600 0 0 Exposed assets165。 0Ps20,288CD10,812A 0W 0LiabilitiesAccounts payable165。 0Ps 1,180CD1,700A 0W 0Notes payable04,2002,30000Longterm debt 0 7,000 2,300 0 0 Exposed liabilities165。 0Ps12,380CD6,300A 0W 0 Net exposure165。 0Ps 7,908CD4,512A 0W 0Note from the revised translation exposure report that the elimination of the transaction exposure will also eliminate the translation exposure in the Japanese yen, Argentine austral and the Korean won. Moreover, the net translation exposure in the Mexican peso has been reduced. But the net translation exposure in the Canadian dollar has increased as a result of the Canadian affiliate’s collection of the won receivable. The remaining translation exposure can be hedged using a balance sheet hedge or a derivatives hedge. Use of a balance sheet hedge is likely to create new transaction exposure, however. Use of a derivatives hedge is actually speculative, and not a real hedge, since the size of the “hedge” is based on one’s expectation as to the future spot exchange rate. An incorrect estimate will result in the “hedge” losing money for the MNC.IM18