Question

Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso ____ while it establishes the new subsidiary and ____ when the subsidiary starts operations

Answer 1

Answer:

a. depreciates; appreciates

Explanation:

Jensen Co. wants to establish a new subsidiary in Mexico that will sell computers to Mexican customers and remit earnings back to the U.S. parent. The value of this project will be favorably affected if the value of the peso depreciates while it establishes the new subsidiary and appreciates when the subsidiary starts operations.

If the value of the peso depreciates while it is establishing the new subsidiary, it means that they will spend less in the establishment process because every dollar will worth more peso, it will even be of more advantage if the materials they need for the establishment such as factory building are produced and gotten in Mexico, government license fees will be lower. If the value of peso appreciates during operation, it means they will remit more funds in dollars to the home country and thus benefit more. For example, if 1 dollar is equal to 200 peso during establishment, the company will spend less. While if 1 dollar is equal to 75 peso during operation, the company will remit more fund.