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A rise in the Canadian dollar against the U.S. dollar means that each Canadian dollar is worth more U.S. dollars. At the same time, each U.S. dollar is worth fewer Canadian dollars. Since the subsidiary earns all of its revenues in U.S. dollars and since a rise in the Canadian dollar against the U.S. dollar means each U.S. dollar of revenue is worth fewer Canadian dollars, the financial impact will be a reduction in revenues for the Canadian subsidiary. Since the Canadian subsidiary incurs all of its expenses in Canadian dollars, a rise in the Canadian dollar against the U.S. dollar will have no effect on the Canadian subsidiary's reported expenses. Reduced revenues and unchanged expenses will lead to a decrease in profit margins, not an increase.
A rise in the Canadian dollar against the U.S. dollar means that each Canadian dollar is worth more U.S. dollars. At the same time, each U.S. dollar is worth fewer Canadian dollars. Since the subsidiary earns all of its revenues in U.S. dollars and since a rise in the Canadian dollar against the U.S. dollar means each U.S. dollar of revenue is worth fewer Canadian dollars, the financial impact will be a reduction in cash inflows for the Canadian subsidiary when it exchanges the U.S. dollars for Canadian dollars. Since the Canadian subsidiary incurs all of its expenses in Canadian dollars, a rise in the Canadian dollar against the U.S. dollar will have no effect on the Canadian subsidiary's cash outflows for operating expenses. Since inflows will be reduced and outflows will not be affected, the net effect of the change in the exchange rate will be a decrease in net cash flows, not an increase.
The question asks what impact a rise in the Canadian dollar against the U.S. dollar will have on the Canadian subsidiary . Note that it does not ask for the impact on the consolidated company. Thus there are no issues here with currency conversion for consolidation purposes. A rise in the Canadian dollar against the U.S. dollar means that each Canadian dollar is worth more U.S. dollars. At the same time, each U.S. dollar is worth fewer Canadian dollars. Since the subsidiary earns all of its revenues in U.S. dollars and since a rise in the Canadian dollar against the U.S. dollar means each U.S. dollar of revenue is worth fewer Canadian dollars, the financial impact will be a reduction in revenues for the Canadian subsidiary.
The question asks what impact a rise in the Canadian dollar against the U.S. dollar will have on the Canadian subsidiary . Note that it does not ask for the impact on the consolidated company. Thus there are no issues here with currency conversion for consolidation purposes. Since the Canadian subsidiary incurs all of its expenses in Canadian dollars, a rise in the Canadian dollar against the U.S. dollar will have no effect on the Canadian subsidiary's reported expenses.