A foreign subsidiary with expenses that are more susceptible to exchange rate movements than its revenue will be favorably affected by an appreciation of the foreign currency.

Question

Quizplus · Accepted Answer

If a foreign subsidiary's expenses are more susceptible to exchange rate movements than its revenue, then an appreciation of the foreign currency would actually have a negative impact. This is because the expenses would increase in the subsidiary's local currency while revenue remains the same, resulting in a decrease in profitability.

A Foreign Subsidiary with Expenses That Are More Susceptible to Exchange