When exchange rates change
A)the value of a foreign subsidiary's foreign currency denominated assets and liabilities change to new numbers still denominated in the foreign currency.
B)the value of a foreign subsidiary's foreign currency denominated assets and liabilities change when redenominated into the home currency.
C)hedging should be done after the change.
D)none of the above

Question

Quizplus · Accepted Answer

When exchange rates change, the value of a foreign subsidiary's foreign currency denominated assets and liabilities also change. However, these changes are reflected in the foreign currency denomination. To determine the impact on the parent company or the home currency, these assets and liabilities must be redenominated into the home currency, which is why option B is correct. Hedging decisions may be done before or after the change in exchange rates, depending on the company's risk management strategy, so option C is incorrect. Option A is partially correct, but it does not fully capture the impact on the parent company or the need for redenomination. Therefore, option D is also incorrect.

When Exchange Rates Change