​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:

Isoquant

A curve that represents all the combinations of inputs that result in the production of a certain level of output, suggesting input substitutability in the production process.

Capital

Financial assets or the financial value of assets, such as cash and goods, used by a business to produce goods and services and create wealth.

Labor

The use of human labor, be it physical or intellectual, in generating goods and services.

MRTS

Marginal Rate of Technical Substitution. It's the rate at which one input can be reduced for every increase in another input, keeping output constant.