Question 1: You are in a group meeting regarding an issue facing your firm’s wholly owned subsidiary in Argentina, which manufactures component parts for your U.S. assembly operations. The subsidiary has been financed by loans in US dollars from a bank in the United States. This loan is due in a year, and the subsidiary will have to remit the funds to pay this loan. One of the analysts in your planning unit has reported that the Argentina currency, the pesos, might still depreciate by 25% percent against the dollar on the foreign exchange markets over the next year. What are the implications of this devaluation on the subsidiary and on the company? What actions, if any, would you recommend?
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