If Revenues and Costs Are Equally Sensitive to Exchange Rate

question 15

Multiple Choice

If revenues and costs are equally sensitive to exchange rate movements, MNCs may reduce their economic exposure by restructuring their operations to shift the sources of costs or revenues to other locations so that:

• A)cash inflows exceed cash outflows in each foreign currency.
• B)cash outflows exceed cash inflows in each foreign currency.
• C)cash inflows match cash outflows in each foreign currency.
• D)none of the above

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Definitions:

Volume Variance

The difference between the planned level of production volume and the actual production volume, often relating to overhead costs.

Predetermined Overhead Rate

The rate used to assign overhead costs to products or services based on a predetermined formula.

Fixed Component

The portion of total costs that remains constant, regardless of changes in activity level.

Variable Overhead

Costs of production that vary with the level of manufacturing activity or output, such as utilities and commissions, as opposed to fixed overhead costs.