Consider a U. S.-based MNC with a wholly-owned German subsidiary. Following a depreciation of the dollar against the euro, which of the following describes the conversion effect of the depreciation? Multiple Choice The cash flow in euro could be altered due a change in the firm's competitive position in the marketplace. A given operating cash flow in euro will be translated to a higher U. S. dollar cash flow. The cash flow in euro could be altered due a change in the firm's competitive position in the market place, and a given operating cash flow in euro will be translated to a higher U. S. dollar cash flow.

Question

Business

Nayeli Wong

4 August, 17:43

Consider a U. S.-based MNC with a wholly-owned German subsidiary. Following a depreciation of the dollar against the euro, which of the following describes the conversion effect of the depreciation? Multiple Choice The cash flow in euro could be altered due a change in the firm's competitive position in the marketplace. A given operating cash flow in euro will be translated to a higher U. S. dollar cash flow. The cash flow in euro could be altered due a change in the firm's competitive position in the market place, and a given operating cash flow in euro will be translated to a higher U. S. dollar cash flow.

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Answers (2)

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Priscilla · Answer 1

The cash flow in euro could be altered due a change in the firm's competitive position in the marketplace.

Explanation:

Multinational company or corporation (MNC) generally has offices and/or factories in different countries and a centralized head office where they coordinate global management. Following the depreciation of dollar against the euro, that means the economy of the US will be affected badly hence the change in US market and the US based MNC, resulting in the firm's competitive position in the marketplace.

Julia Hickman · Answer 2

Consider a U. S.-based MNC with a wholly-owned German subsidiary. Following a depreciation of the dollar against the euro, which of the following describes the conversion effect of the depreciation?

A. The cash flow in euro could be altered due an alteration in the firm's competitive position in the marketplace.

B. A given operating cash flow in euro will be translated to a higher U. S. dollar cash flow.

C. Both a) and b)

D. None of the above.

Answer:

B. A given operating cash flow in euro will be translated to a higher U. S. dollar cash flow.

Explanation:

Given that dollar has depreciated against the value of Euro, which technically means, the value of a dollar has reduced compared to Euro. Hence, the conversion of the depreciation is that, the operating cash flow in euro will translates to a higher U. S dollar cash flow.

In other words, as dollar depreciates in value against the value of euro, it means the value of euro has appreciated.

For example: if initially, 1 dollar = 0.9 euro, which will translates to 9 euro = 10 dollars

However, with dollar depreciating against euro, then 1 dollar could equates 0.7 dollar, depending on the level of depreciation.

Therefore, say, 7 euro will now equal 10 dollars.