The Foreign Subsidiary of a U

question 40

Multiple Choice

The foreign subsidiary of a U.S.firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S.dollars.This is an example of which one of the following?

• A)Interest rate disparities
• B)Short-run exposure to exchange rate risk
• C)Long-run exposure to exchange rate risk
• D)Political risk associated with the foreign operations
• E)Translation exposure to exchange rate risk

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Definitions:

Interest Rates

The cost of borrowing money or the return on savings, usually expressed as a percentage.

Lower

To reduce in height, intensity, or amount.

Short-term Sources

Financial resources or funding options available to a company for a period typically less than a year, used to fulfill immediate financial needs.

Funds

Capital that is set aside for a specific purpose or project, often collected from various sources and utilized for investment or expenses.