_____ Parrex Has a Foreign Subsidiary, Sarrex

Multiple Choice

_____ Parrex has a foreign subsidiary, Sarrex. The direct exchange rate decreased from $.70 at 1/1/06 to $.60 at 12/31/06. During 2006, Sarrex had (a) an average net asset position of 400,000 LCUs and (b) an average net monetary liability position of 600,000 LCUs. Under the temporal method, what is the effect of the change in the exchange rate for 2006?

A) $40,000 favorable.
B) $40,000 unfavorable.
C) $60,000 favorable.
D) $60,000 unfavorable.
E) None of the above.