Jacko plc is a UK-based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the pound. Kriner plc is a UK-based MNC that has the same exposure as Jacko plc in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk?

Question

Quizplus · Accepted Answer

Kriner plc has a higher exposure to exchange rate risk because its cash flows in Sunland francs are outflows, which means it cannot benefit from the negative correlation between the two currencies. Jacko plc, on the other hand, has inflows in both currencies, which can offset each other due to the negative correlation, reducing its exchange rate risk.

Jacko Plc Is a UK-Based MNC with Net Cash Inflows