A firm considers an exporting project and will invoice the exports in dollars. Estimating the expected cash flows in dollars would be more difficult if the currency of the foreign country is:
A) fixed
B) volatile
C) stable
D) None of these are correct, as the firm is not exposed.

Question

Quizplus · Accepted Answer

If the currency of the foreign country is volatile, it will be more difficult for the firm to estimate the expected cash flows in dollars. Fluctuations in the exchange rate can have a significant impact on the amount of cash received, potentially affecting the profitability of the project. A stable or fixed currency would be easier for the firm to predict and plan for.  Therefore, B is the correct choice.

A Firm Considers an Exporting Project and Will Invoice the Exports