Assume that a company has a foreign subsidiary in a country with an exchange rate that is expected to strengthen against the parent company's currency. If the parent is planning the timing for the subsidiary to send a dividend to the parent,it would probably choose a lag strategy.

Question

Quizplus · Accepted Answer

When the exchange rate is expected to strengthen against the parent company's currency, the parent company will receive more of its own currency for each unit of foreign currency received. Therefore, the parent company would prefer to delay (lag) the receipt of dividends from the subsidiary until after the exchange rate has strengthened.

Assume That a Company Has a Foreign Subsidiary in a Country