If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:

Question

Quizplus · Accepted Answer

If cash inflows match cash outflows in each foreign currency, then the MNC's economic exposure will be minimized because any exchange rate movements will have an offsetting effect on both revenues and costs in that currency, leading to a relatively stable net cash flow. By restructuring their operations to shift sources of costs or revenues to other locations, the MNC can achieve this balance and reduce their economic exposure to exchange rate movements.

If Revenues and Costs Are Equally Sensitive to Exchange Rate