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28 September, 19:43

Suppose that a firm builds a factory overseas, staffs it with foreign workers, uses materials supplied by foreign companies, and finances the entire operations with a loan from a foreign bank located in the same town as the factory. This firm is probably trying to greatly reduce, or eliminate, any:

a. translation exposure to exchange rate risk.

b. interest rate disparities.

c. political risk associated with the foreign operation.

d. short-run exposure to exchange rate risk.

e. long-run exposure to exchange rate risk.

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  1. 28 September, 20:13
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    e. long-run exposure to exchange rate risk.

    Explanation:

    As firm is doing business by using resources from a foreign country. It is avoiding exchange rate risk. If they are brought from home money then it will be exposed to high exchange rate risk.
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