MNCs can use short-term foreign financing to reduce their exposure to exchange rate fluctuations. For example, if an American-based MNC has ____ in euros, it could borrow ____, resulting in an offsetting effect.
A) payables; euros
B) receivables; euros
C) payables; dollars
D) receivables; dollars

Question

Quizplus · Accepted Answer

If an American-based MNC has receivables in euros, it can borrow euros to offset the exposure to exchange rate fluctuations. This way, even if the exchange rate between the euro and the dollar changes, the MNC will not be affected as the amount of euros it borrows will offset the amount of receivables it has in euros.

MNCs Can Use Short-Term Foreign Financing to Reduce Their Exposure