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Unformatted text preview: response to differentials in price changes between countries b. Therefore, the exchange rate effect is offset by the change in prices A. Is Exchange Rate Risk A. Relevant? Relevant? A. Is Exchange Rate Risk A. Relevant? Relevant?
2. The Investor Hedge Argument: No! a. investors in MNCs can hedge exchange rate risk on their own b. Argument assumes that investors have information on corporate exposure to exchange rate fluctuations c. Investor prefers company hedge A. Is Exchange Rate Risk A. Relevant? Relevant?
3. Currency Diversification Argument
a. If a U.S.based MNC is well diversified...
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