U.S.-based MNCs whose foreign subsidiary generates large earnings may be able to offset exposure to exchange rate risk by issuing bonds denominated in the subsidiary's local currency.

Question

Quizplus · Accepted Answer

By issuing bonds denominated in the subsidiary's local currency, the MNC can match the currency of its revenue with the currency of its debt, which can provide a natural hedge against exchange rate risk. This strategy is known as "local currency financing".

US-Based MNCs Whose Foreign Subsidiary Generates Large Earnings May Be