Question

Consider a period in which the U.S. dollar strengthens against the euro. How will this affect...

Consider a period in which the U.S. dollar strengthens against the euro. How will this affect the reported earnings of a U.S. based MNC with European subsidiaries?

A.

The reported earning will be lower
B.

The reported earning will be higher
C.

The reported earning will not be affected
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Answer is A.

Reported Earnings will be lower is US dollar strengthens against the Euro. Let us assume that the exchange rate initially was 1$ = 50 Euro. Let say the consolidated earnings in Euro earned by the subsidiaries was 50 Euro. So, when converted into US $, it would have been 1$. But, now, the Euro is depreciating or US $ appreciating, the new exchange rate is 1$ = 100 Euro. This implies 50 Euro earnings would now be equivalent to 0.5$. This is lower than 1$ which was the earlier translated result.

This implies reported earnings will be lower as firsm would incurr a translation loss.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Describe in general terms how future appreciation of the euro will likely affect the value (from...
Describe in general terms how future appreciation of the euro will likely affect the value (from the parent’s perspective) of a project established in Germany today by a U.S.-based MNC. Will the sensitivity of the project value be affected by the percentage of earnings remitted to the parent each year?
How the depreciation of the Australian dollar against the US dollar would affect the return to...
How the depreciation of the Australian dollar against the US dollar would affect the return to a US company that invested in an Australian money market security. Select one: a. US company’s return will be higher b. US company’s return will be lower c. Australian company’s return will be higher d. Australian company’s return will be lower
In recent years the U.S. dollar has weakened against the Euro in the foreign exchange market....
In recent years the U.S. dollar has weakened against the Euro in the foreign exchange market. a) Explain how this effects trade between the two countries. b) Explain how such a situation can have a positive effect on the U.S. economy.
Consider the Euro-dollar exchange rate (nominal exchange rate = Euros/$US). For each of these examples, use...
Consider the Euro-dollar exchange rate (nominal exchange rate = Euros/$US). For each of these examples, use a supply/demand diagram for the foreign exchange market to show the impact on the exchange rate. In each case, does the exchange rate appreciate or depreciate? a. A debt crisis in Europe causes investors holding Euro denominated securities to move to dollar denominated securities. b. The European Central Banks raises interest rates, attracting inflows from U.S. financial investors into European markets. c. The European...
Over the last 10​ years, the dollar has depreciated sharply​ vis-à-vis the euro. Suppose that in...
Over the last 10​ years, the dollar has depreciated sharply​ vis-à-vis the euro. Suppose that in the short run the Fed wanted both to defend the dollar​ (that is, stop its decline​ and/or cause it to​ appreciate) and stimulate investment. Can it achieve both of these goals simultaneously through monetary​ policy?   A. ​Yes, to stimulate investment the Fed will use expansionary policy that will raise interest rates. The higher interest rates will reduce investment into the United​ States, which will...
In which of the following scenarios does the firm benefit from the Euro (EUR) depreciating against...
In which of the following scenarios does the firm benefit from the Euro (EUR) depreciating against the US Dollar (USD)? A. A US firm expects to receive 10 million Euros in one month B. A US corporation needs to make a principal payment on a 2 million Euro loan next week. C. None of the above D. All of the above E. A US firm is planning to sell a machine to a European supplier next year
2. a. Company Ziyu. is a U.S. based MNC with net cash inflows of euros and...
2. a. Company Ziyu. is a U.S. based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Kang Co. is a U.S. based MNC that has the same level of net cash flows in these currencies as Ziyu Co. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk? Why? b. Stephanie Olive Co. is...
Your selected country is experiencing a strong and appreciating currency against the U.S. dollar. How could...
Your selected country is experiencing a strong and appreciating currency against the U.S. dollar. How could this affect the price of your product to export in your selected country?
You reside in the U.S. and are planning to make a one-year investment in Italy during...
You reside in the U.S. and are planning to make a one-year investment in Italy during the next year. Since the investment is denominated in euros, you want to forecast how the euro’s value may change against the dollar over the one-year period. You expect that Italy will experience an inflation rate of 3% during the next year, while all other European countries will experience an inflation rate of 7% over the next year. You expect that the U.S. will...
9) In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at...
9) In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro. How many euros will the U.S. investor acquire with his initial $500,000 investment? A) €650,000 B) €370,370 C) €500,000 D) €384,615 10) Not all firms have the same optimal capital structure. Factors that might influence a firm's capital structure include: A) the industry in which it...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT