Question

Old Main Co. has some expenses and revenue in Mexican Peso. If its expenses are more sensitive to exchange rate movements than revenue, it could reduce economic exposure by _______. A. decreasing foreign revenues B. decreasing foreign expenses C. increasing foreign expenses

Answer 1

Answer:

• B. decreasing foreign expenses

Explanation:

Economic exposure is the risk derived from the variation in the foreign revenues and expenses of the firm due to exchange rate movements.

If the expenses are more sensitive to exchange rate movements than revenue, means that a depreciation of the Mexican Peso would cause the expenses to increase more than revenue,

That means that the expenses would increase more than the revenue affecting the financial situation of the firm.

Hence, to reduce the economic exposure, Old Main Co. should reduce its foreing expenses.