Corporate Finance and Exchange Rate Variations

Abstract

In 1962 a U.S.-based automobile manufacturing company which already had extensive foreign operations began to expand and restructure its subsidiaries in the European Economic Community (EEC). The corporation decided to concentrate most of its engine production in a new plant in Strasbourg, France. This location was chosen because of shipping economies and in response to considerable inducements offered by the French government to export-oriented industries willing to settle in that part of the country. The company had no other facilities in France; however, it owned very large manufacturing operations in Germany and smaller ones in Belgium where vehicles were assembled. The entire output of the French subsidiary was sold to these two plants. The automobiles were then marketed throughout the Common Market and beyond, although the market share of the company in France was negligible.