If an MNC expects cash inflows of equal amounts in two currencies, and the two currencies are ____ correlated, the MNC's transaction exposure is relatively ____.
A) negatively; high
B) negatively; low
C) positively; low
D) none of the above

Question

Quizplus · Accepted Answer

When two currencies are negatively correlated, their values tend to move in opposite directions. This means that when one currency strengthens, the other weakens. If an MNC has cash inflows of equal amounts in two negatively correlated currencies, any gain in one currency will be offset by a loss in the other currency. As a result, the MNC's transaction exposure is relatively low, since the net effect of currency fluctuations is minimized.

If an MNC Expects Cash Inflows of Equal Amounts in Two