Assume you have a subsidiary in Australia. The subsidiary sells mobile homes to local consumers in Australia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all of its materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar. Your subsidiary borrowed funds from the U.S. parent, and must pay the parent $100,000 in interest each month. Australia has just decreased its interest rate in order to reduce the value of its currency (Australian dollar, A$). The Australian dollar depreciates against the U.S. dollar as a result. Explain whether these actions would increase, reduce, or have no effect on the following amounts.
The volume of your subsidiary's sales in Australia (measured in A$).
The volume of the sales should -Select-declineriseremain unchangedItem 1 as the cost to consumers who finance their purchases would -Select-declineriseremain unchangedItem 2 due to the lower interest rates.
The cost to your subsidiary of purchasing materials (measured in A$).
The cost of purchasing materials should -Select-declineriseremain unchangedItem 3 because the A$ -Select-appreciatesdepreciatesremains unchangedItem 4 against the HK$ as it depreciates against the U.S. dollar.
The cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$).
The interest expenses should -Select-declineriseremain unchangedItem 5 because it will take -Select-morefewerthe sameItem 6 A$ to make the monthly payment of $100,000.