Final answer:
The correct answer is (c) - the valuation of an MNC should decline when expected cash flows from foreign subsidiaries decrease and when the foreign currencies denoting these cash flows are expected to depreciate.
Step-by-step explanation:
The valuation of an MNC (Multinational Corporation) should decline when an event causes the expected cash flows from foreign subsidiaries to decrease and when the foreign currencies denoting these cash flows are expected to depreciate. This scenario describes a situation where both the quantity of cash inflows is falling, and the currency value of these inflows is diminishing, which doubly impacts the MNC's valuation negatively.
Applying this to the available information, we understand that when a currency is expected to depreciate, people tend to sell off that currency, leading to an increase in supply and a decrease in demand for that currency in the foreign exchange markets, which results in a decrease in the currency's value. Moreover, if an economy is borrowing to finance consumption rather than investment, the potential for capital flight in anticipation of currency depreciation increases, which can further depress the currency's value and increase the cost of servicing foreign debt.
Therefore, the correct option in this instance would be (c) - the valuation of an MNC should decline when the expected cash flows from foreign subsidiaries decrease; and when the foreign currencies denominating these cash flows are expected to depreciate.