​Magent Co

question 38

Multiple Choice

​Magent Co. is a U.S. company that has exposure to the Swiss franc (SF) and Danish kroner (DK) . It has net inflows of SF200 million and net outflows of DK500 million. The present exchange rate of the SF is about $.40 while the present exchange rate of the DK is $.10. Magent Co. has not hedged these positions. The SF and DK are highly correlated in their movements against the dollar. If the dollar weakens, then Magent Co. will:

• A) ​benefit, because the dollar value of its SF position exceeds the dollar value of its DK position.
• B) ​benefit, because the dollar value of its DK position exceeds the dollar value of its SF position.
• C) ​be adversely affected, because the dollar value of its SF position exceeds the dollar value of its DK position.
• D) ​be adversely affected, because the dollar value of its DK position exceeds the dollar value of its SF position.

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