An unexpected change in exchange rates impacts a firm's cash flows at what level(s)?
A) short run
B) medium run (equilibrium case)
C) long run
D) all of the above

Question

Quizplus · Accepted Answer

An unexpected change in exchange rates can impact a firm's cash flows at all levels - short run, medium run (equilibrium case), and long run. In the short run, the impact could be immediate and significant, affecting the firm's profitability, competitiveness, and ability to meet financial obligations. In the medium run, the exchange rate may eventually move towards its equilibrium level, but the firm may have to adjust its business strategies and operations to cope with the changing market conditions. In the long run, the exchange rate may have permanent effects on the firm's competitiveness, market share, and investment decisions. Therefore, firms need to monitor and manage their exposure to foreign exchange risk at all levels to minimize the negative impact on their cash flows.

An Unexpected Change in Exchange Rates Impacts a Firm's Cash