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 the above

Question

Quizplus · Accepted Answer

If the two currencies are negatively correlated, it means that when one currency loses value, the other currency gains value, and vice versa. Therefore, if an MNC expects cash inflows of equal amounts in two negatively correlated currencies, any losses due to the decline in the value of one currency will be offset by the gains from the other currency, resulting in lower transaction exposure for the MNC.

If an MNC Expects Cash Inflows of Equal Amounts in Two