The Following Information Is to Be Used in Answering Questions

question 5

Multiple Choice

The following information is to be used in answering questions 36?38.
U.S. borrowing rate for 1 year = 9.5%
U.S. deposit rate for 1 year = 8.7%
French borrowing rate for 1 year = 11.3%
French deposit rate for 1 year = 10.2%
French franc spot quote = $0.1763?78
French franc 1?year forward quote = $0.1729?47
-1990, Goodyear had operations in both Germany and the Netherlands. In the past the Dutch guilder and Deutsche mark were highly correlated in their movements against the U.S. dollar. If the Dutch unit has net inflows of guilders and the German unit has net inflows of DM, then Goodyear's combined transaction exposure

• A) approximately equals the sum of its guilder and DM exposures
• B) is less than the sum of its guilder and DM exposures because the currencies are highly correlated
• C) is less than the sum of its guilder and DM exposures because of diversification between the company's subsidiaries
• D) is not significant due to the highly correlated nature of the two currencies

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Definitions:

Groupthink

The impaired group decision making that occurs when making the right decision is less important than maintaining group harmony.

Impartial Leader

A leader who treats all group members fairly and equally, without bias or favoritism, often resulting in more objective and fair decision-making processes.

Decision Making

The mental activity of evaluating alternatives and choosing among them.

Social Identity Theory

A theory in psychology that examines the relationship between one's sense of self and the broader social groups to which one belongs.