Cuzco Carpets, S.A is the Carpets, SA., is the Peruvian subsidiary of the U.S. firm, Carolina Fabrics, Inc. Cuzco Carpets manufactures high-quality carpets from llama wool and sells its finished carpets to its U.S. parent. The rate of exchange between the Peruvian new sole and thy dollar is NS320004. This is also the historic rate at which feted assets and inventory were purchased and at which capita] stock was issued. Unconsolidated balance sheets for both parent and subsidiary
are as follows:
Net plant $ equipment
investment in Cuzco Carpets
Liabilities and nets Worth
Long-term de hi
NS I 80,000.1100
a. Does c:arolilla Fabrics have any transaction exposure? If so, where and how nuts- 115 What would be the effect Should the new col devalue from NS3,2/4 NS-LO/4?
b. does Carlonia.) Fabrics have any translation exposure? If so, where and how much? What would Had be the effect should the new Sol devalue from NS32/$ to NS4.0/$?
C. Prepare consolidated balance sheets for Carolina Fabrics and Cuzco Carpet, both before and after a devaluation from NS3,2/$ to NS4.0/$ Use the current rate method.