Assume that an MNC's cash flows are positively related to the movements in a foreign currency. If the MNC expects the foreign currency to weaken, it could purchase the currency forward to reduce its degree of economic exposure.

Question

Quizplus · Accepted Answer

If the MNC's cash flows are positively related to the movements in a foreign currency, then it would want to increase its degree of economic exposure to that currency rather than reducing it. Therefore, it would not purchase the currency forward in this scenario.

Assume That an MNC's Cash Flows Are Positively Related to the Movements