Why Would the Management of a Multinational Corporation Incur Real

question 20

Multiple Choice

Why would the management of a multinational corporation incur real costs to hedge accounting exposure, which is only on paper?

• A) Fluctuations in reported income may affect stock price.
• B) Management compensation may be tied to accounting income.
• C) Hedging can smooth income.
• D) All of the above

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Definitions:

Long-Run Equilibrium

The state in which all factors of production and costs are variable, and firms earn normal profits in a competitive market.

Competitive Firm

A firm operating in a market with many competitors, where prices are determined by supply and demand forces.

Economic Profits

The difference between total revenue and total economic costs (including both explicit and implicit costs), representing surplus or profit not achievable in perfect competition.

Competitive Industries

Industries characterized by many firms competing for market share, leading to innovation and efficient resource allocation.