Consider a U.S. MNC with operations in Great Britain. Which of the following are potential risks following a strengthening of the dollar?

Question

Quizplus · Accepted Answer

A strengthening of the dollar relative to the pound will result in a pound depreciation. This will make the U.S. MNC's products more expensive in Great Britain, potentially affecting its competitive position in the marketplace and ultimately impacting operating cash flow in pounds. Additionally, if the MNC earns operating cash flows in pounds, when those cash flows are converted to dollars, they will be worth less due to the pound depreciation. Therefore, both option A and B are potential risks for the U.S. MNC with operations in Great Britain following a strengthening of the dollar.