Jacko Co. is a U.S.-based MNC with net cash inflows of euros and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Kriner Co. is a U.S.-based MNC that has the same exposure as Jacko Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a higher exposure to exchange rate risk?
A) Jacko Co.
B) Kriner Co.
C) The firms have about the same level of exposure.
D) Neither firm has any exposure.

Question

Quizplus · Accepted Answer

Kriner Co. has a higher exposure to exchange rate risk as its cash outflows in Sunland francs will be negatively impacted by any appreciation of the dollar against the franc. In contrast, Jacko Co. will benefit from any appreciation of the dollar against the euro as its net cash inflows are in euros.

Jacko Co Is a U