United States Dollar and Money Market Hedge

A put option would be preferable because it gives you the flexibility to exchange pounds for dollars at the prevailing spot rate when receiving payment. Chapter 12 10. Comparing Degrees of Translation Exposure. Nelson Co. is a U. S. irm with annual export sales to Singapore of about S$800 million. Its main competitor is Mez Co. , also based in the United States, with a subsidiary in Singapore that generates about S$800 million in annual sales. Any earnings generated by the subsidiary are reinvested to support its operations. Based on the information provided, which firm is subject to a higher degree of translation exposure? Explain. ANSWER: Since Nelson Company does not have any subsidiaries, its exposure to exchange rate fluctuations would not be classified as translation exposure. Conversely, Mez Company is subject to translation exposure.