When a US-Based MNC Has a Subsidiary in Mexico That Needs Financing

question 50

Multiple Choice

When a U.S.-based MNC has a subsidiary in Mexico that needs financing, the MNC's exposure to exchange rate risk can be minimized if:

• A) the parent issues dollar-denominated equity and provides the proceeds to the subsidiary.
• B) the parent provides its retained earnings to the Mexican subsidiary.
• C) the subsidiary obtains a dollar-denominated loan from a financial institution.
• D) the subsidiary obtains a peso-denominated loan from a financial institution.

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Definitions:

Cost Reconciliation Report

A report that outlines the differences or reconciliations between the cost of goods manufactured and the cost of goods sold.

Costs Accounted For

The total costs identified and recorded for a specific period or project, including both direct and indirect expenses.

Costs Added

Refers to any additional expenses incurred during the production or acquisition of goods and services, typically encompassing materials, labor, and overhead costs that were not initially budgeted or anticipated.

Job-Order Costing

A cost accounting system that assigns costs to specific production batches or jobs, often used for custom orders.