Magent ltd. is a UK company that has exposure to the Swiss franc (SF) and Danish kroner (DK) . It has net inflows of SF 200 million and net outflows of DK 500 million. The present exchange rate of the SF is about £0.22 while the present exchange rate of the DK is £0.05. Magent ltd. has not hedged these positions. The SF and DK are highly correlated in their movements against the pound. If the pound weakens, then Magent ltd. will:
A) benefit, because the pound value of its SF position exceeds the pound value of its DK position.
B) benefit, because the pound value of its DK position exceeds the pound value of its SF position.
C) be adversely affected, because the pound value of its SF position exceeds the pound value of its DK position.
D) be adversely affected, because the pound value of its DK position exceeds the pound value of its SF position.
Correct Answer:
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