Assume that the Japanese yen is expected to depreciate substantially over the next year. A U.S.-based MNC has a subsidiary in Japan, where its costs exceed revenues. The overall value of the MNC will ____ because of the yen's depreciation.
A)decrease
B)increase
C)remain unchanged
D)A and C are possible

Question

Quizplus · Accepted Answer

When the Japanese yen depreciates, the costs in yen for the U.S.-based MNC's subsidiary in Japan, when converted back to dollars, will decrease more than the revenues, assuming revenues exceed costs in local currency terms. This leads to an increase in the overall value of the MNC.

Assume That the Japanese Yen Is Expected to Depreciate Substantially