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 $100,000 in interest each month. Australia has just raised its interest rate in order to boost the value of its currency (Australian dollar, A$). The Australian dollar appreciates against the dollar as a result. Explain whether these actions would increase, reduce, or have no effect on the cost to your subsidiary of making the interest payments to the U.S. parent (measured in A$).

	The interest expense should increase because it will take more A$ to make the monthly payment of $100,000
	The interest expenses should decrease because it will take fewer A$ to make the monthly payment of $100,000
	There will be no change in the interest expense amount