Question

8) Assume the USD depreciates against the EUR. Which scenario best describes the FX exposure(s) for a U.S. MNC? A) The USD value of the firm's EUR sales increases. B) The earnings at the firm's French subsidiary increase when added to the consolidated financial statements. C) Consumers in Europe buy more U.S. goods. D) All of the above. 9) Suppose your U.S. firm will receive EUR 1,000,000 in one year. The interest rate on the euro is 5% p.a. and on the U.S. dollar is 3% p.a. The current spot rate for the euro is $1.00. If you use a money market hedge, how much will you receive in one year? Note: 1,000,000/1.03 = 970,874; 1,000,000/1.05 = 952,381; 970874 * 1.05 = 1,019,418; 952,381 * 1.03 = 980,952. A) $970,874 B) $980,952 C) $1,019,418 D) None of the above. 10) Why might a Japanese retail investor who is risk-averse choose to trade with the Mexican peso over the Turkish lira? A) If the peso is more volatile vis-a-vis the U.S. dollar than the lira. B) If the peso is less volatile vis-a-vis the U.S. dollar than the lira. C) If Mexico's economic situation is relatively more stable than Turkey's situation. D) B&C.

Answer 1

9. The correct answer is option D All of the answer choices are correct.

If USD depreciates against EUR, then the value of EUR has gone up.

A. When the EUR sales are converted back to USD, the value in USD is more.

B. The consolidated statements in USD will have more value because the EUR buys more of USD.

C. Consumers in Europe buy more U.S. goods because the prices in USD are cheaper compared to the EUR. It takes fewer EUR to buy 1 USD.

Please do not downvote for not answering the remaining questions. As per HOMEWORKLIB RULES, when there are multiple questions, we are encouraged to provide a solution to at least the first question.

Can you please upvote? Thank You :-)