Assume that the Japanese yen is expected to depreciate substantially over the next year.The U.S.-based MNC has a subsidiary in Japan, where its costs exceed revenues. The overallvalue of MNC will because of the yen's depreciation.a. Decreaseb. Increasec. remain unchangedd. A and C are possible
Question
Assume that the Japanese yen is expected to depreciate substantially over the next year.The U.S.-based MNC has a subsidiary in Japan, where its costs exceed revenues. The overallvalue of MNC will because of the yen's depreciation.a. Decreaseb. Increasec. remain unchangedd. A and C are possible
Solution
The value of the U.S.-based MNC (Multinational Corporation) will likely increase due to the depreciation of the Japanese yen. Here's why:
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The MNC's costs in Japan will decrease in terms of U.S. dollars because of the yen's depreciation. This means that the same amount of yen will convert to fewer U.S. dollars, reducing the cost for the MNC.
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Although the MNC's revenues in Japan will also decrease in terms of U.S. dollars, the question states that the costs exceed the revenues. Therefore, the reduction in costs will have a greater impact than the reduction in revenues.
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The net effect of these changes will be an increase in the MNC's overall value, as its profitability in Japan (in terms of U.S. dollars) will improve.
So, the correct answer is b. Increase.
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