Assume an MNC Establishes a Subsidiary Where It Has No

question 63

Multiple Choice

Assume an MNC establishes a subsidiary where it has no other existing business. The present value of parent cash flows from this subsidiary is more sensitive to exchange rate movements when:

• A) the subsidiary finances the entire investment by local borrowing.
• B) the subsidiary finances most of the investment by local borrowing.
• C) the parent finances most of the investment.
• D) the parent finances the entire investment.

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Definitions:

Expected Value

The weighted average of all possible values of a random variable, representing the long-term average outcome of a given situation if it were to be repeated many times.

Simple Linear Regression

A statistical method for estimating the relationship between two quantitative variables, allowing predictions of one variable given the other.

True Correlation

The actual degree of a linear relationship between two variables, excluding any error or distortion.

Linear Relationship

A type of correlation where there is a constant change rate between two variables, indicative of a straight line when graphed.