Assume that an MNC's cash flows are positively related to the movements in a foreign currency. If the MNC expects the foreign currency to weaken, it could purchase the currency forward to reduce its degree of economic exposure.

Question

Quizplus · Accepted Answer

If the MNC's cash flows are positively related to the movements in a foreign currency, it would actually benefit from a weakening of the currency. In this case, it would not make sense to purchase the currency forward to reduce economic exposure. Instead, the MNC may choose to delay its receipts or accelerate its payments to take advantage of the weaker currency.

Assume That an MNC's Cash Flows Are Positively Related to the Movements