Geographically Diversified Operations Provide a Natural Hedge of Transaction Exposure

question 9

Multiple Choice

Geographically diversified operations provide a natural hedge of transaction exposure to currency risk because ______.

• A) operating costs in one country are unlikely to be related to costs in another country
• B) it is easy to replace sales in one country with sales from another country
• C) when one currency is depreciating, another currency must be appreciating
• D) Two of the above
• E) None of the above

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Definitions:

Uncertainty

The lack of certainty or predictability in outcomes, often a factor in economic, financial, and business environments that can affect decision-making.

Dividend Cuts

A reduction in the dividend amount announced by a company, usually due to financial difficulties or a need to conserve cash.

Cash Dividends

Payments made by a corporation to its shareholders from its earnings in the form of cash.

Bond Restriction

Conditions or covenants included in a bond agreement that impose certain limitations on the issuer's actions.