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

Question

Quizplus · Accepted Answer

The depreciation of the dollar against the euro would lead to a lower competitive position for the U.S. firm's subsidiary in France, which could affect the subsidiary's cash flow in euros. The extent of this effect would depend on the elasticity of demand for the firm's product or service. Option B is incorrect, as the translation of operating cash flow in euros to U.S. dollars would also depend on the firm's hedging program.