Question

2.
a. Company Ziyu. is a U.S. based MNC with net cash inflows of euros and net cash inflows of Swiss francs. These two currencies are highly correlated in their movements against the dollar. Kang Co. is a U.S. based MNC that has the same level of net cash flows in these currencies as Ziyu Co. except that its euros represent net cash outflows. Which firm has a higher exposure to exchange rate risk? Why?

b. Stephanie Olive Co. is a U.S. based MNC with net cash inflows of Singapore dollars and net cash inflows of Sunland francs. These two currencies are highly negatively correlated in their movements against the dollar. Deepika Co. is a U.S. based MNC that has the same exposure as Stephanie Co. in these currencies, except that its Sunland francs represent cash outflows. Which firm has a high exposure to exchange rate risk? Why?

Answer 1

a) As Ziyu Co. has cash outflow also in the foreign currency so it in bit of safe Zone as it can set off its paybles in the foreign currency . The other two companies has only expecting cash inflow from the foreign currency so the if the volatility in the currency exchang is high then the risk associated is also will be in a higher side.

b) As Deepika Co. has cash outflow also in the foreign currency so it in bit of safe Zone as it can set off its paybles in the foreign currency . The other two companies has only expecting cash inflow from the foreign currency so the if the volatility in the currency exchang is high then the risk associated is also will be in a higher side.