7. Sources of uncertainty of MNC's Cash Flows Consider a U.S.-based MNC parent, Triloo Inc., that owns subsidiaries in the France, Mexico, and Australia. Suppose that the economy in France strengthens, leading to a higher national income. This higher national income in France will most likely denoted in euros and the demand for Triloo products, leading to in the value of Triloo Inc. This example is best classified as a case of exposure to Suppose that Triloo Inc. expects cash flows from its French subsidiaries of 17,000,000 euros at the end of the current time period, Management at Triloo forecasts the exchange rate to be $1.90 per euro at the end of this time period. in cash flows from French subsidiaries at the end of the current time period. Suppose that, after further analysis, management at Triloo now forecasts the euro to weaken against the dollar. Triloo expects the exchange rate at the end of the current time period to be $1.50 per euro. This means that Triloo will have an estimated This means that Triloo will now have an estimated expected cash flows from the company's original forecast. in cash flows from French subsidiaries, which represents a decrease of

7. Sources of uncertainty of MNC's Cash Flows Consider a U.S.-based MNC parent, Triloo Inc., that owns subsidiaries in the France, Mexico, and Australia. Suppose that the economy in France strengthens, leading to a higher national income. This higher national income in France will most likely denoted in euros and the demand for Triloo products, leading to in the value of Triloo Inc. This example is best classified as a case of exposure to Suppose that Triloo Inc. expects cash flows from its French subsidiaries of 17,000,000 euros at the end of the current time period, Management at Triloo forecasts the exchange rate to be $1.90 per euro at the end of this time period. in cash flows from French subsidiaries at the end of the current time period. Suppose that, after further analysis, management at Triloo now forecasts the euro to weaken against the dollar. Triloo expects the exchange rate at the end of the current time period to be $1.50 per euro. This means that Triloo will have an estimated This means that Triloo will now have an estimated expected cash flows from the company's original forecast. in cash flows from French subsidiaries, which represents a decrease of

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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