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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- 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 riskHow may the domestic cost of capital for a foreign venture be adjusted to account for currency rate risk, political risk, and nation risk?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.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.How can a firm make a direct foreign investment?
- Which of the following situation is NOT the case that a domestic company is exposed to foreign currency exchange risk? a. A firm commitment to enter into a foreign currency transaction. b. A forecasted foreign currency transaction that has a high probability of occurrence. c. An investment in a domestic subsidiary. d. An actual existing foreign currency transaction that results in recognition of assets or liabilities.When a firm enters a transaction that need to be settled in foreign currency, what are the risks that they are exposed to? What are the possible ways for a firm to avoid those risks and what will be the effect?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
- 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?Which of the following is matter if a U.S. parent firm plans to completely finance the establishment of its British subsidiary with existing funds from retained earnings. The discount rate of the NPV from the project would be affected by ______. A. the parent's cost of capital B. the sales volume of the subsidiary C. the economic conditions D. the cost of borrowingConsider the following statement: "Arbitrage from currency trade could exist only under capital restrictions" True or false