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Hedging the Position of Individual Subsidiaries Is Generally Necessary, Even

question 40

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Hedging the position of individual subsidiaries is generally necessary, even if the overall performance of the MNC is already insulated by the offsetting positions between subsidiaries.

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Definitions:

Subsidy

Financial aid supplied by the government to an industry or business, with the aim of keeping prices low for consumers or aiding the business to be competitive.

Efficiency Loss

Economic costs that arise when market equilibrium is not achieved, or when resources are not allocated optimally, leading to waste or suboptimal outcomes.

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium for a good or service is not achieved or is not achievable.

Marginal Cost

The extra expense associated with manufacturing an additional unit of a product or service.

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