Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____.
A) increase; postpone remitting earnings until the euro weakens
B) decrease; postpone remitting earnings until the euro weakens
C) decrease; remit earnings immediately before the euro weakens
D) increase; remit earnings immediately before the euro weakens

Question

​Assume a U.S. firm initiates direct foreign investment in Italy. If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent should ____. The parent may request that the subsidiary ____.
A) ​increase; postpone remitting earnings until the euro weakens
B) ​decrease; postpone remitting earnings until the euro weakens
C) ​decrease; remit earnings immediately before the euro weakens
D) ​increase; remit earnings immediately before the euro weakens

Quizplus · Accepted Answer

If the euro is expected to depreciate against the dollar, the dollar value of earnings remitted to the parent would decrease because each euro converted would yield fewer dollars. To mitigate this, the parent may request that the subsidiary remit earnings immediately before the euro weakens, to maximize the dollar value of the remittances.

​Assume a U

Assume a U