If the currency in which costs of an MNC are denominated rises in value,the operating cash flow of the MNC may be adversely affected because:
A)its cost rise and its competitive position improves but not enough to offset the increase in costs.
B)its cost increase and its competitive position deteriorates.
C)its costs decrease and its competitive position deteriorates more than it saves for the decrease in costs.
D)its costs decrease and its competitive position deteriorates.

Question

Quizplus · Accepted Answer

When the currency in which costs of an MNC are denominated rises in value, the MNC's cost increases. This means that if prices remain the same, the MNC's profit margins will be reduced. This decrease in profit margins will also decrease the MNC's competitive position because it will make it more difficult for the MNC to compete with other companies that have lower costs. Therefore, an increase in the value of the currency in which costs are denominated will adversely affect the MNC's operating cash flow because its cost increases and its competitive position deteriorates.

If the Currency in Which Costs of an MNC Are