Magent Co. is a U.S. company that has exposure
to the Swiss francs (SF) and Danish kroner (DK). It has net inflows of SF200
million and net outflows of DK500 million. The present exchange rate of the SF
is about $.40 while the present exchange rate of the DK is $.10. Magent Co. has
not hedged these positions. The SF and DK are highly correlated in their
movements against the dollar. If the dollar weakens, then Magent Co.
will:
Answer
benefit, because the dollar value of
its SF position exceeds the dollar value of its DK
position.
benefit, because the dollar value of
its DK position exceeds the dollar value of its SF
position.
be adversely affected, because the
dollar value of its SF position exceeds the dollar value of its DK
position.
be adversely affected, because the
dollar value of its DK position exceeds the dollar value of its SF
position.