Question

Provide in each case a brief explanation articulating why the statement may be true, false or even uncertain.

Please do not exceed the word limit, only the first 300 words of your answer will be read and marked for each question.

Multinational banks whose exposure in foreign markets is primarily through subsidiaries may find it easier to exercise an exit option should losses become too high in the event of a major economic crisis; other banks, however, exposed through branches or through direct cross-border lending, as well as through loans to their subsidiaries, may find it walking away from their affiliate far more complicated. (Word limit 300)

Answer 1

This given statement is TRUE because when a multinational bank has a branch in other countries and it has its subsidiaries who are established there who are into retail as well as wholesale lending and then if major economic crisis unfolds there would be a better exit strategy for them, because they will have more exposure and it would be hedgef as their subsidiaries is operating in that country.

It will gain from the devaluations in that country and it is always be hedged against positional exposure and there is exchange rate as the books of accounts are to be converted into to the parents country exchange rate so establishment of a subsidiary in other country always protects the amount of loss because it protects against the devaluation of the currency and any economic crisis as it will help them to get an easy exit as there would be lesser losses.

while other banks who do not have a subsidiary in that country where the economic crisis unfolded may not be finding it easy to exit as they are exposed through branches or cross border lending as well as loans to their subsidiaries because they would not be gaining from the devaluation advantage and they would find it very difficult to hedge against the currency exposure.