What effect does a weakening in U.S dollar have on Net Income for subsidiaries of U.S companies?
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What effect does a weakening in U.S dollar have on Net Income for subsidiaries of U.S companies?
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- Explain the effect a drop in value of the U.S. dollar in relation to other currencies on the foreign exchange markets has on the sales of a U.S. business firm that exports part of its output to foreign countries.Impact of Foreign Currency and Interest Rates on Company ProfitabilityThe 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 risk
- If the U.S. dollar were to appreciate substantially, what steps could a domestic manufacturer such as Cummins Engine Co. of Columbus, Indiana, take in advance to reduce the effect of the exchange rate fluctuation on company profitability?Following an unanticipated dollar appreciation, would you recommend that a domestic manufacturing company such as Cummins Engine sell foreign assets? Yes or NoWhich 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.
- What modifications may be made to the domestic cost of capital for a foreign venture to account for currency rate and political risk?Explain how you will manage each of these situations. The major export markets of your company have suffered a substantial depreciation in their currency rates compared to the AUD.How foreign currency risk can affect the value of a multinational company?
- Assume 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.How may the domestic cost of capital for a foreign venture be adjusted to account for currency rate risk, political risk, and nation risk?Suppose InBev Corporation (a non-U.S. MNC) buys Anheuser-Busch Corporation (a U.S. corporation) by paying the U.S. shareholders in cash. Which of the following can be said of the US capital account? Group of answer choices The acquisition of cash by US shareholders will decrease foreign ownership, which will be recorded as a debit. The US federal reserve will increase its currency reserves. InBev's reduction in cash will be recorded as a debit on the U.S. capital account.. InBev's increased ownership of US assets is recorded as a credit. U.S. shareholders increased ownership in InBev will be recorded as a credit.