Consider a U.S.-based MNC with a wholly-owned European subsidiary selling a product sourced in euro and priced in euro with inelastic demand. Following a depreciation of the dollar against the euro, which of the following is the most true?
A) Since they have inelastic demand, the U.S. firm can just pass through the impact of the exchange rate change.
B) Since they have elastic demand, the U.S. firm cannot just pass through the impact of the exchange rate change.
C) Since the exchange rate movement was favorable to the U.S. firm, there is no impact on the firm's position.
D) None of the above.
Correct Answer:
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