​A US Firm Has a Canadian Subsidiary That Remits a Large

question 29

Multiple Choice

​A U.S. firm has a Canadian subsidiary that remits a large amount of its earnings to the parent on an annual basis. It also imports supplies from China, invoiced in Chinese yuan. The firm has no other foreign business and needs a small loan. The firm could best reduce its exposure to exchange rate risk by borrowing:

• A) ​U.S. dollars.
• B) ​Canadian dollars.
• C) ​Chinese yuan.
• D) ​a combination of Canadian dollars and Chinese yuan.

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Definitions:

Creditor

An individual, institution, or entity that lends money or extends credit, expecting to be repaid.

Lien

A claim against specific property to satisfy a debt.

Mortgage Insurance

Insurance that compensates a lender for losses due to a borrower’s default on a mortgage loan.

Debtor

An individual or organization that owes money to another party, typically as a result of being lent a sum of money or extended credit.