Depreciation of the euro relative to the U.S. dollar will cause a U.S.-based MNC's reported earnings (from the consolidated income statement) to ____. If a firm desired to protect against this possibility, it could stabilize its reported earnings by ____ euros forward in the foreign exchange market.

Question

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Depreciation of the euro means the euro is worth less in terms of the U.S. dollar, reducing the value of euro-denominated earnings when converted to dollars. To hedge against this, the firm could sell euros forward to lock in the current exchange rate.

Depreciation of the Euro Relative to the U