1. The following are arguments for why exchange rate risk is relevant for MNCs, EXCEPT:

A) Investors who invest in M N Cs do not have complete information on each M N C's exposure to exchange rate fluctuations, so they may not have the ability to hedge the exposure of their individual investments to exchange rate risk.

B) Many MNCs are similarly affected by exchange rate movements, so it would be difficult for stakeholders to create a diversified portfolio of M N Cs that will be fully insulated from exchange rate movements.

C. Exchange rate effects on an M N C will not be offsetting, because the exchange rate movements of many currencies against the dollar go in the same direction over a specific period.

D) An MNC with cash flows in numerous currencies should not be affected by exchange rate risk if the adverse effects due to some currency movements are offset by the favorable effects of other currency movements

2. In the analysis of the impact of cash flow and correlation conditions on an MNCs FX exposure, which of the following will result in the highest exposure considering the same amount in both currencies?

A) Net inflows in two currencies, which has a correlation of zero.

B) Net inflows in two currencies, which are negatively correlated.

C) An inflow in one currency and an outflow in another currency, which are highly correlated.

D) An inflow in one currency and an outflow in another currency, which are negatively correlated.