A multi-national corporation (MNC) can give some protection to international cash flows by reducing its liabilities if the currency is appreciating, or by reducing its financial assets if the currency is depreciating.

Question

Quizplus · Accepted Answer

MNCs can use liability reduction to protect against currency appreciation and asset reduction to protect against currency depreciation. By reducing liabilities in a foreign currency that is appreciating, the MNC can decrease the amount of funds it owes in that currency. Similarly, by reducing financial assets held in a depreciating currency, the MNC can avoid losses due to the depreciation. These strategies help protect the MNC's international cash flows from unfavorable currency fluctuations.

A Multi-National Corporation (MNC) Can Give Some Protection to International