Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso ____ while Jensen establishes the new subsidiary and ____ when the subsidiary starts operations.
A) depreciates; appreciates
B) appreciates; appreciates
C) appreciates; depreciates
D) depreciates; depreciates

Question

Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso ____ while Jensen establishes the new subsidiary and ____ when the subsidiary starts operations.​
A) ​depreciates; appreciates
B) ​appreciates; appreciates
C) ​appreciates; depreciates
D) ​depreciates; depreciates

Quizplus · Accepted Answer

If the value of the peso depreciates while Jensen establishes the new subsidiary, they will be able to set up the subsidiary with lower costs and will have more purchasing power in Mexico. This will favorably affect the value of the project. 
On the other hand, if the value of the peso appreciates when the subsidiary starts operations, the subsidiary will have to convert more pesos to U.S. dollars to remit earnings back to the parent. This will increase costs and unfavorably affect the value of the project. Therefore, the value of the project will be favorably affected if the peso depreciates while establishing the subsidiary and appreciates when the subsidiary starts operations.

Jensen Co Wants to Establish a New Subsidiary in Mexico That