Question: Cairo Ingot, Ltd. Cairo Ingot, Ltd., is the Egyptian subsidiary of Trans-Mediterranean Aluminum, a British multinational that fashions automobile engine blocks from aluminum. Trans-Mediterranean's home reporting currency is the British pound. Cairo Ingot's December 31 balance sheet is shown below. At the date of this balance sheet the exchange rate between Egyptian pounds and British pounds sterling was £E5.50/UK£.
What is Cairo Ingot's contribution to the translation exposure of Trans-Mediterranean on December 31, using the current rate method? Calculate the translation exposure loss to Trans-Mediterranean if the exchange rate at the end of the following quarter is £E6.00/£. Assume all balance sheet accounts are the same at the end of the quarter as they were at the beginning.