Use the Following Information for Questions

question 18

Multiple Choice

Use the following information for questions
A London based firm has a subsidiary located in New York. The subsidiary has $1,000 in assets and $750 in liabilities. The current spot rate is $1.60/£.
-What is the U.S. firm's net exposure?

• A) $250
• B) $750
• C) $1,000
• D) $1,750
• E) Cannot be determined.

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Definitions:

Appreciated

Describes an increase in value of an asset or currency over time, often due to economic factors.

Purchasing-Power Parity

An economic theory that compares different countries' currencies through a "basket of goods" approach to assess the relative value of currencies.

Nominal Exchange Rate

How quickly one currency is swapped for another, without considering inflation adjustments.

Big Mac

A hamburger sold by McDonald's that is often used as an informal measure of purchasing power parity between currencies.