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

Quizplus · Accepted Answer

If the euro is expected to depreciate, the dollar value of earnings remitted will decrease. Therefore, the parent may request the subsidiary to remit earnings immediately before the euro weakens further.