Assume US Interest Rates Are Significantly Higher Than German Rates

question 51

Multiple Choice

Assume U.S. interest rates are significantly higher than German rates. A U.S. firm with a German subsidiary could achieve a lower financing rate without exchange rate risk by denominating thebonds in

• A) dollars.
• B) euros and making payments from U.S. headquarters.
• C) euros and making payments from its German subsidiary.
• D) dollars and making payments from its German subsidiary.

---

Definitions:

Acquisition Differential

The gap between what is paid for an acquisition and the fair value of the clearly identified assets acquired.

Impairment Losses

Financial recognition of the reduced recoverable value of an asset, below its carrying amount on the balance sheet.

Equity

It denotes the residual interest in the assets of the entity after deducting liabilities, often referred to as shareholders' equity.

Statement of Consolidated

Financial statements that present the assets, liabilities, and operating results of a parent company and its subsidiaries as one entity.