Saller Co. has a subsidiary in Mexico. The expected cash flows in pesos to be received in the future from this subsidiary have not changed since last month, but the valuation of Saller Co. has declined since last month. What could've caused this decline in value?

Question

Quizplus · Accepted Answer

The decline in the valuation of Saller Co. can be attributed to the depreciation of the Mexican peso. If the expected cash flows in pesos have not changed, then a decline in the value of the peso means that those cash flows are now worth less in terms of US dollars (or other currency). This would lead to a lower valuation of the subsidiary and, potentially, of Saller Co. as a whole. The other options (weaker Mexican economy, lower interest rates, and appreciation of the peso) may also have an impact on the value of the subsidiary, but are not necessarily related to the information provided in the question.

Saller Co Has a Subsidiary in Mexico