To hedge translation exposure, MNCs could ____ that their foreign subsidiaries receive as earnings to create a cash outflow in the currency to offset the earnings received in that currency.

Question

Quizplus · Accepted Answer

To hedge translation exposure, MNCs could sell the currency forward that their foreign subsidiaries receive as earnings. This creates a cash inflow in the currency, effectively offsetting the earnings received in that currency. Purchasing the currency forward or purchasing futures contracts of the currency would create a cash outflow in the currency, which would not be an effective hedge for translation exposure. Therefore, option B is the most appropriate choice.

To Hedge Translation Exposure, MNCs Could ____ That Their Foreign