Empirical research has found that systematic risk for MNEs is greater than that for their domestic counterparts. This could be due to:
A) the fact that the increase in the correlation of returns between the market and the firm is less than the increase in the standard deviation of returns of the firm.
B) the fact that the decrease in the correlation of returns between the market and the firm is greater than the increase in the standard deviation of returns of the firm.
C) the reduction in the correlation of returns between the firm and the market is less than the increase in the variability of returns caused by factors such as asymmetric information, foreign exchange risk, and the like.
D) None of the above; systematic risk is less for MNEs than for their domestic counterparts.

Question

Quizplus · Accepted Answer

Empirical research has shown that the reduction in the correlation of returns between the firm and the market is less than the increase in the variability of returns caused by factors such as asymmetric information, foreign exchange risk, and the like. This means that while MNEs may be able to diversify their risks across different countries, they are still exposed to unique risks that are not present for domestic firms, resulting in greater systematic risk.

Empirical Research Has Found That Systematic Risk for MNEs Is