Jacko Co Is a U

question 57

Multiple Choice

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

• A)Jacko Co.
• B)Kriner Co.
• C)The firms have about the same level of exposure.
• D)Neither firm has any exposure.

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Definitions:

Debentures

A type of long-term debt instrument that is not secured by physical assets or collateral.

Warrants

Financial instruments that give the holder the right to purchase shares of a company at a specific price within a certain time period.

Securities

Financial instruments that represent an ownership position in a publicly-traded corporation (stock), a creditor relationship with a governmental body or a corporation (bond), or rights to ownership as represented by an option.

SEC Regulations

Rules and laws that the U.S. Securities and Exchange Commission enforces to protect investors, maintain fair and orderly functioning of the securities markets.