Your subsidiary borrowed funds from the U. S. Parent, and must pay the parent $100,000 in interest each month. Australia has Just raised its interest rate in order to boost the value of its currency (AS). The Australian dollar appreciates against the US dollar as a result. Briefly explain whether these actions would increase, reduce, or have no effect on: a) The volume of your subsidiary sales in Australia (measured in AS) b) The cost to your subsidiary of purchasing materials (measured in AS) c) The cost to your subsidiary of making the interest payments to the U.
S. Aren’t (measured in AS). Briefly explain each answer. Economics By bureaucratic to Australian clients. Fluctuations of the dollar don’t result in terms of purchases. However, indirectly the cost of goods will drop and a consequence the cost of production will drop, then there is a possibility of increased volume of sales due to a drop in price. B) The cost of goods will drop will drop, the cost of HIKE/USED will not change, but due to a change in stronger Australian dollar, then the cost of raw goods in Australian dollars will fall. ) The subsidiary in Australia is conducting business n Australian dollars, therefore due to a stronger Australian dollar the number of Australian dollars to make the interest payments will decrease. This will have a direct impact of the profitability to the subsidiary. As will the lower cost of goods, assuming that the consumers sell price remains the same. Question 3. If the government of Mexico officially changed the value of the Mexican peso from 3. 2 pesos per US dollar to 5. 5 pesos per US dollar. What was the percentage change in its value? Was this a depreciation, devaluation, appreciation, or revaluation?
Briefly explain. The Percentage change = SSL-SO/SO solo = 3. 2-5. 5/5. 5 XIII = -41. 81% devaluation in the Mexican Peso Generally depreciation applies to currencies that are from floating, market sensitive conditions that have little to no government intervention. As the government changed the rate from 3. 2 to 5. 5 Pesos to USED then this change is considered a devaluation of currency. Also as that you can now get 5. 5 pesos to the USED from the previous rate at 3. 2 it can be said that the currency has become weaker, therefore it is a devaluation rather than a revaluation.