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International Finance

18. Middle American Corporation (MAC) produces a line of corn silk cosmetics. All of the inputs are purchased domestically and processed at the factory in Des Moines, Iowa. Sales are only in the United States, primarily west of the Mississippi.

a. Is there any sense in which MAC is exposed to the risk of foreign exchange rate changes that effect large multinational firms? If yes, how could MAC protect itself from these risks?

b. If MAC opens a sales office in Paris, will this move increase its exposure to exchange rate risks? Explain.

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a. Is there any sense in which MAC is exposed to the risk of foreign exchange rate changes that effect large multinational firms? If yes, how could MAC protect itself from these risks?

ANSWER. MAC is exposed to the risk that the French franc/U.S. dollar exchange rate may change and alter the price of French cosmetics relative to U.S. cosmetics. If the ...

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