If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:

Question

Quizplus · Accepted Answer

When revenues and costs are equally sensitive to exchange rate movements, an MNC can reduce its economic exposure by matching cash inflows with cash outflows in each foreign currency. This can be achieved by restructuring operations to shift the sources of costs or revenues to other locations. By doing so, the MNC can ensure that its overall exposure to exchange rate movements is minimized. Option A and B are incorrect as they do not ensure a balance between cash inflows and outflows. Option D is incorrect as it does not provide any solution to reducing economic exposure.

If Revenues and Costs Are Equally Sensitive to Exchange Rate