_____ Parrex Has a Foreign Subsidiary, Sarrex, in a Country

Multiple Choice

_____ Parrex has a foreign subsidiary, Sarrex, in a country in which 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 (900,000 LCUs - 300,000 LCUs) . Under the current rate method, what is the effect of the 2006 exchange rate change?

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