The Central Bank of Romania is about to engage in indirect intervention. It is expected

that Romania$$s interest rates will be lowered substantially. Lower interest rates will have

an impact on the value of the Romanian currency $($The Leu$)$ against most currencies

because it will immediately affect capital flows. Texas Co$.,$ a U$.$S$.$ based firm, has a

subsidiary in Romania that sells electrical equipment. The demand for its products is not

affected much by the local Romanian economy. Most electrical equipment produced in

Romania are typically invoiced in Leu. There has been a surge in demand from French

consumers for such equipment in recent years. The subsidiary$$s main competition is from

producers based in Italy that also export electrical equipment to France.

i$.$ How the impact on the Leu$$s value will affect the sales of electrical equipment by

the Romanian subsidiary? Explain

ii$.$ The Romanian subsidiary plans to remit $10$ million Leu from its recent earnings to

the U$.$S$.$ parent in the near future. Explain how the impact on the Leu$$s value will

affect the amount of dollar cash flows received by the U$.$S$.$ parent due to this

remittance of earnings by the subsidiary.