If an MNC expects cash inflows of equal amounts in two currencies, and the two currencies are ____ correlated, the MNC's transaction exposure is relatively ____.
A) negatively; high
B) negatively; low
C) positively; low
D) None of these are correct.

Question

Quizplus · Accepted Answer

When two currencies are negatively correlated, it means that when the value of one currency increases, the value of the other currency decreases. Thus, if an MNC has equal cash inflows in two negatively correlated currencies, any losses in one currency due to exchange rate fluctuations would be offset by gains in the other currency. As a result, the MNC's transaction exposure is relatively low.

If an MNC Expects Cash Inflows of Equal Amounts in Two