What are the circumstances under which the capital expenditure of a foreign subsidiary might have a positive NPV in local currency terms but be unprofitable from the parent firm’s perspective?
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What are the circumstances under which the capital expenditure of a foreign subsidiary might have a positive NPV in local currency terms but be unprofitable from the parent firm’s perspective?
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- What modifications may be made to the domestic cost of capital for a foreign venture to account for currency rate and political risk?The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following? A. Interest rate disparities B. Short-run exposure to exchange rate risk C. Long-run exposure to exchange rate risk D. Political risk associated with the foreign operations E. Translation exposure to exchange rate riskAssume that a U.S. company has a foreign subsidiary whose functional currency is the U.S. dollar. Explain how exchange rates between the foreign currency and the dollar would have to change in order to result in a current-year remeasurement loss and how the company could use a foreign currency loan receivable or payable to hedge against its net investment in the foreign subsidiary.
- Which is the most simple way that is able to protect a U.S firm's earnings of its consolidated income statement in the depreciation of euro relative to U.S. dollar? A. Selling euros forward in the foreign exchange market. B. Partner with the local firm of the oversea market. C. Purchasing euros forward in the foreign exchange market. D. Establish a subsidiary in the oversea economy.Question What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure? In translating a foreign subsidiary's financial statements, what exchange rate should be used for the subsidiary's revenues and expenses? How can a parent corporation determine the functional currency for a foreign subsidiary that conducts business in more than one country? What concept underlies the temporal method of translation? What concept underlies the current rate method of translation? How does balance sheet exposure differ under these two methods? What are the major procedural differences in applying the current rate and temporal methods of translation?A foreign subsidiary with more revenue than expenses impacted by foreign currency exchange rate movements will be favorably affected by an appreciation of the foreign currency. Group of answer choices True False
- Give typing answer with explanation and conclusion Which of the following is an example of foreign exchange risk for an MNC? a. Foreign subsidiary of the MNC may face higher tarriffs b. Foreign subsidiary of the MNC may have to pay higher taxes c. Foreign subsidiary of the MNC may make less sales due to weak foreign currency d. Foreign subsidiary of the MNC may make less sales due to lower consumer incomeDiscuss any current financial issues that affect the operating environment of the MNC distibuting via export and explain how these issues affect the company’s foreign currency exposureWhat are the relevant cash flows for an international investment:the cash flow produced by the subsidiary in the country whereit operates, or the cash flows in dollars that it sends to its parentcompany?
- Explain how the present value of the salvage value of an American subsidiary will be affected (from the Philippine's parent’s perspective) by (a) an increase in the risk of the foreign subsidiary and (b) an expectation that US’s currency (dollar) will depreciate against the dollar over time. *Why might a company prefer a foreign currency option rather than a forward contract in hedging a foreign currency firm commitment? Why might a company prefer a forward contract over an option in hedging a foreign currency asset or liability?
