How can the way a firm arranges its financing limit its currency risk?
A)It can borrow more than it currently needs so that future cash needs are met.
B)It can arrange for a line of credit to provide for future financing needs.
C)It can coordinate its financing cash flow and its operational cash flow.
D)It can sell debt instruments in its home currency.

Question

Quizplus · Accepted Answer

By coordinating its financing cash flow and its operational cash flow, a firm can limit its currency risk. This means that the firm aligns the timing and currency denominations of its cash inflows and outflows from both financing activities and operating activities. By doing so, the firm can avoid sudden changes in cash flows that could result in currency losses. The other options listed (A, B, and D) do not directly address the coordination of financing and operational cash flows, and therefore do not necessarily limit currency risk in the same way.

How Can the Way a Firm Arranges Its Financing Limit