Goodyear Has Operations in Both Germany and the Netherlands

question 15

Multiple Choice

Goodyear has operations in both Germany and the Netherlands. Because of their membership in the European monetary system, the Dutch guilder and Deutsche mark are 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
• D) b and c