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CTP · Question #177
(Topic 2) A multinational company owns a United Kingdom subsidiary that has total assets equal to £1 million and intercompany loans due to the parent company equal to $1 million. It would like to…
The correct answer is A. Borrow GBP from a U.K. bank to repay the intercompany dollar debt. See the full explanation below for the reasoning.
Question
- (Topic 2)
A multinational company owns a United Kingdom subsidiary that has total assets equal to £1 million and intercompany loans due to the parent company equal to $1 million. It would like to undertake a balance sheet hedge of the U.K. subsidiary’s GBP liability because it expects a depreciation of the pound. Given these circumstances, which of the following actions would be appropriate?
Options
- ABorrow GBP from a U.K. bank to repay the intercompany dollar debt.
- BBorrow USD from a U.K. bank to repay the intercompany dollar debt.
- CTake no action because exchange rates cannot be predicted.
- DExchange rates are fixed and thus no losses should occur.
How the community answered
(38 responses)- A84% (32)
- B3% (1)
- C11% (4)
- D3% (1)
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