The Foreign Exchange Market

1. Repatriating profits: I would repatriate the subsidiary's profits from Mexico to the United States as soon as possible. This would reduce the subsidiary's exposure to the depreciation of the peso.
2. Refinancing the subsidiary's debt: I would consider refinancing the subsidiary's debt in U.S. dollars. This would reduce the subsidiary's exposure to the depreciation of the peso, and it would also make it easier for the subsidiary to repay its debt.
3. Contingency planning: I would develop a contingency plan in case the peso depreciates by more than 30 percent. This plan could include things like delaying or cancelling future investments in Mexico, or moving the subsidiary's operations to another country.

It is important to note that these are just some of the actions that I could take. The specific actions that I would take would depend on a number of factors, such as the size of the subsidiary, the amount of debt that the subsidiary has, and the company's risk appetite.

If I were the CFO of a U.S. firm whose wholly-owned subsidiary in Mexico manufactures component parts for my U.S. assembly operations and the subsidiary has been financed by bank borrowings in the United States, and one of my analysts told me that the Mexican peso is expected to depreciate by 30 percent against the dollar on the foreign exchange markets over the next year, I would take the following actions:

1. Hedging: I would hedge the subsidiary's future cash flows against the depreciation of the peso. This could be done by entering into a forward contract to sell pesos at a fixed price in the future. This would protect the subsidiary from the risk of a depreciation of the peso, and it would ensure that the subsidiary has the necessary U.S. dollars to repay its bank borrowings.