Reference no: EM132897262

Assume An Australian company has a subsidiary in Malaysia.

The subsidiary sells mobile homes to local consumers in Malaysia, who buy the homes using mostly borrowed funds from local banks. Your subsidiary purchases all its materials from Hong Kong. The Hong Kong dollar is tied to the U.S. dollar (USD). Your subsidiary borrowed funds from the Australian parent and must pay Australian dollar (AUD)10,000 in interest each month to the parent company. Malaysia has just cut its interest rate in order to boost the value of its exports by weakening its currency (Malaysian ringgit (MYR)). Because of interest rate cut, the MYR expect to depreciate against both the USD and the AUD.

You are required to explain how would the following operational indicators respond (increase, reduce, or have no effect) to the expected depreciation of MYR (you need to provide justification for you answers).

1. The volume of your subsidiary's sales in Malaysia in MYR.

2. The cost to your subsidiary of purchasing materials in MYR.

3. The cost to your subsidiary of making the interest payments to the Australian parent in MYR. Briefly explain each answer.

4. The value of the Malaysian subsidiary to the Australian parent company in AUD