A US-Based Multinational Corporation (MNC)currently Has an Investment Portfolio That Includes

question 61

Multiple Choice

A U.S.-based multinational corporation (MNC) currently has an investment portfolio that includes Japanese securities valued at 10,000,000 yen.The company also owes its Japanese suppliers 12,000,000 yen.Which of the following statements is MOST correct?

• A) The MNC is not exposed to exchange rate risk because it holds both assets and liabilities denominated in yen.
• B) The MNC will be exposed to exchange rate losses if the yen declines in value relative to the dollar.
• C) The MNC will be exposed to exchange rate losses if the yen increases in value relative to the dollar.
• D) The MNC can avoid exchange rate risk by paying its Japanese liabilities with dollars.

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Definitions:

Issue Price

The price at which new or existing securities are offered for sale to the public or an individual.

Dividend Yield

A financial ratio that shows how much a company pays out in dividends each year relative to its stock price, often used by investors to assess the income-generating potential of an investment.

Cash Dividends Per Share

A measure of the amount of cash dividends paid out to shareholders per share of common stock.

Market Price

The price point at which a service or asset is currently available for trading within a market.