Question

If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that: a. cash inflows exceed cash outflows in each foreign currency. b. cash outflows exceed cash inflows in each foreign currency. c. cash inflows match cash outflows in each foreign currency. d. none of these

Answer 1

C) cash inflows match cash outflows in each foreign currency.

Step-by-step explanation:

Economic exposure refers to the risks that a multinational corporation faces when dealing with different currencies. The more currencies a corporation works with, the higher their exposure to unexpected currency rate fluctuations that can either increase or decrease their revenues significantly.

If the corporation wants to reduce or eliminate economic exposure, they should match the cash inflows and cash outflows of their foreign subsidiaries. Although this represents a contradiction in why the corporation operates in foreign markets, since if all your foreign cash inflows match your foreign cash outflows, what is the corporation's profit? Why operate in a country where you will not earn money? For example, GM started to close its operations in most foreign countries because they didn't generate enough cash inflows, a corporation is not a charity. Economic exposure is one of the greatest risks relating foreign operations, but if you do not like risks, you should close down your operations and concentrate on your domestic market. Economic exposure and globalization are best friends, and no one can separate them and still expect to gain benefits.

Answer 2

The correct answer is c. ​cash inflows match cash outflows in each foreign currency.

Step-by-step explanation:

Cash inflows from operating activities include income from the sale of goods or services and documents receivable, among others. Cash outflows from operating activities include cash and account disbursements for inventory paid to suppliers, payments to employees, the treasury, creditors and other suppliers for various expenses.

Cash outflows from investment activities include payments of money for loans made to debtors, for the purchase of a loan portfolio, for investments, and for acquisitions of property, plant and equipment. How a company classifies certain items depends on the nature of its operations.