A firm considers an exporting project and will invoice the exports in dollars. Estimating the expected cash flows in dollars would be more difficult if the currency of the foreign country is ____.
A)fixed
B)volatile
C)stable
D)none of the above, as the firm is not exposed

Question

Quizplus · Accepted Answer

If the currency of the foreign country is volatile, it means that the exchange rate between the dollar and that currency is subject to frequent and unpredictable changes, making it harder for the firm to accurately estimate their expected cash flows in dollars. A fixed currency or a stable currency would make it easier to estimate expected cash flows. However, if the firm is not exposed to currency fluctuations (e.g. if they use currency hedging), then none of the options would apply.

A Firm Considers an Exporting Project and Will Invoice the Exports