Final answer:
The valuation of an MNC with foreign subsidiaries is directly affected by foreign exchange rates, as they influence the returns on international investments and the currency value of the MNC's overseas profits.
Step-by-step explanation:
According to the text, the valuation of an MNC with foreign subsidiaries is directly affected by foreign exchange rates. Exchange rate movements can influence the return on investments in various ways, impacting exporters, tourists, and international investors differently. For instance, when a country's interest rates rise compared to another, like the example of the United States versus Mexico, its currency tends to appreciate. This appreciation makes financial investments in the country with the higher rate of return more attractive, leading to an increased demand for that country's currency. This shift in demand and supply for the currency affects the exchange rates, which in turn influences the valuation of an MNC, as its foreign investments and earnings get converted into home currency.