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Problem:

The CFO of a company with global operations has a forecast that indicates that the euro will depreciate in value against the dollar by 30% over the next year. The company has significant operations in the Euro Zone, including a wholly owned subsidiary that manufactures components for products that are assembled in the US. The subsidiary is financed with bank borrowings in the US.

Required:

Question: Discuss the implications of this change in exchange rate and what actions can be taken and why.

Note: Be sure to show how you arrived at your answer.

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