What is the risk to an MNC if its receivables are denominated in one currency and its payables are denominated in another currency?
A)If the value of the currency in which the payable increases in value relative to the currency in which the receivables are denominated,the default risk on the receivables will increase.
B)The International Fisher Effect will cause the values of the two currencies to converge,causing the MNC a loss on the receivable it collects.
C)Since the source of the MNC's collections and the current debts that it owes are in different currencies,a change in the relative values of the two currencies will create either a gain or a loss for the MNC.
D)If the value of one currency increases relative to the other currency,the MNC will be forced to refinance its debt.

Question

Quizplus · Accepted Answer

If the value of the currency in which the receivables are denominated decreases relative to the currency in which the payables are denominated, the MNC will face a loss. On the other hand, if the value of the currency in which the receivables are denominated increases, the MNC will earn a gain. Therefore, a change in the relative values of the two currencies will create either a gain or a loss for the MNC. The other options are incorrect as they do not accurately describe the risk posed to an MNC in this scenario.

What Is the Risk to an MNC If Its Receivables