Answers / Corporate Treasury

A company has a USD functional currency and a EUR subsidiary. The subsidiary has a €100M loan from a bank. The EUR weakens by 10% against USD. How does this affect the group's reported net debt and leverage? Assume no hedge.

An advanced Corporate Treasury question — expect it in final rounds and case-heavy interviews (IB, PE, Big-4 Transaction Services).

THE SHORT ANSWER

The loan is in EUR, so from the subsidiary's perspective, it's unchanged. But for consolidation, the loan is translated at the spot rate. If EUR weakens, the USD value of the loan decreases by 10%, reducing net debt. Leverage (net debt/EBITDA) improves because net debt falls while EBITDA (in USD) from the subsidiary also decreases but likely less proportionally. However, the translation effect on EBITDA may partially offset. Overall, a weaker EUR reduces reported net debt in USD, but also reduces reported EBITDA, so the net impact on leverage depends on the relative magnitudes.

WHAT INTERVIEWERS LISTEN FOR

  • ✓Loan translated at spot, so USD value falls
  • ✓Net debt decreases
  • ✓EBITDA also decreases, leverage impact ambiguous

COMMON MISTAKES

  • ✗Ignores translation of EBITDA
  • ✗Thinks net debt is unaffected

Reading isn't the same as answering under pressure.

Interviewers don't hand you the model answer — you deliver yours on a clock. Practice this and 1,000+ questions with AI feedback on every answer.

TRY QUICKFIRE →Or train full Corporate Treasury case simulations →

RELATED QUESTIONS