I.T. Canwait, Inc., a U.S.-based multinational, has just soldcans to a

QUESTION

I.T. Canwait, Inc., a U.S.-based multinational, has just soldcans to a west German company, I.C. Spots, Inc. Spots will pay forthe order in 60 days. I.T. Canwait is now exposed to which kind ofrisk:a. transactionb. translationc. operatingd. financial
I.T. Canwait, Inc., a U.S.-based multinational, has just sold cansto a west German company, I.C. Spots, Inc. Spots will pay for theorder in 60 days. I.T. Canwait is now exposed to which kind ofrisk: a. transactionThe exchange rate risk associated with the time delay betweenentering into a contract and settling it. The greater the timedifferential between the entrance and settlement of thecontract, the greater the transaction risk, because there ismore time for the two exchange rates to fluctuate. b. translationThe exchange rate risk associated with companies that deal inforeign currencies or list foreign

ts on their balance sheets.The greater the proportion of asset, liability and equityclasses denominated in a foreign currency, the greater thetranslation risk. c. operatingThis is related to operating expenses and should not be taken intoaccount d. financialThe risk that a company will not have adequate cashflow to meet financial obligations. Therefore, the best answer is (b) translation risk Hope that helps

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