Question

Chicago Company has a subsidiary in Germany where it generates large profits. The subsidiary remits most of its earnings to the parent each year. If Chicago Company wants to reduce its exposure to exchange rate risk, it might consider _______________ to finance the German subsidiary's operations.

Answer 1

Answer:instructing the German subsidiary to borrow euros from a bank in Germany

Explanation:A company may organize subsidiaries to keep its brand identities separate. This allows each brand to maintain its established goodwill with customers and vendor relationships. Subsidiaries can also help you position part of your business as an alternative to the parent company at a different price point.

The Chicago Company will instruct the German subsidiary to lend Euro from bank in Germany.

Answer 2

Answer:

C) instructing the German subsidiary to borrow euros from a bank in Germany

Explanation:

In order for the Chicago company to reduce the exchange rate risk of the German subsidiaries, It might consider the German subsidiary borrowing euros from a bank in Germany to finance the operations of the German subsidiary.

Exchange rate risk is the possibility that the value of an investment will change when the currency is exchanged. It arises as a result of different currencies used by different countries.

Foreign investments face the problem of exchange rate risk because the operate in different countries using different currencies.

Difference in exchange rate could lead to loss of capital or Profits in a foreign investments