Question Details

Comparing Degrees of Translation Exposure 


1. Comparing Degrees of Economic Exposure. Carlton Co. and Palmer, Inc., are U.S.-based
MNCs with subsidiaries in Mexico that distribute medical supplies (produced in the United States)
to customers throughout Latin America. Both subsidiaries purchase the products at cost and sell
the products at 90 percent markup. The other operating costs of the subsidiaries are very low.
Carlton Co. has a research and development center in the United States that focuses on improving
its medical technology. Palmer, Inc., has a similar center based in Mexico. The parent of each firm
subsidizes its respective research and development center on an annual basis. Which firm is
subject to a higher degree of economic exposure? Explain.
2. Comparing Degrees of Translation Exposure. Nelson Co. is a U.S. firm 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.



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