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The Central Bank of Poland is about to engage in indirect intervention later today, in which it will lower Poland s interest rates substantially. This
The Central Bank of Poland is about to engage in indirect intervention later today, in
which it will lower Polands interest rates substantially. This will have an impact on
the value of the Polish currency zloty against most currencies because it will
immediately affect capital flows. Nevada Co has a subsidiary in Poland that sells
appliances. The demand for its appliances is not affected much by the local economy.
Most of its appliances produced in Poland are typically invoiced in zloty and are
purchased by consumers from Germany. The subsidiarys main competition is from
appliance producers in Portugal, Spain, and Italy that also export appliances to
Germany.
i Explain how the impact on the zlotys value will affect the sales of
appliances by the Polish subsidiary
ii The subsidiary owes a British company million British pounds for some
technology that the British company provided. Explain how the impact on
the zlotys value will affect the cost of this technology to the subsidiary.
iii. The subsidiary plans to take million zloty from its recent earnings, and
will remit it to the US parent in the near future. Explain how the impact on
the zlotys value will affect the amount of dollar cash flows received by the
US parent due to this remittance of earnings by the subsidiary.
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