Active Learning $-1$

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Cincinnati Co$.$ is a U$.$S$.$ company that has net inflows of $100$ million Swiss francs and net outflows of $100$ million British pounds. The present exchange rate of the Swiss franc is about $$0\mathrm{.}70$ while the present exchange rate of the pound is $$1\mathrm{.}90.$ Cincinnati Co$.$ has not hedged these positions. The Swiss franc and British pound are perfectly correlated in their movements against the dollar. Explain whether Cincinnati Co $.$ will be favorably or adversely affected if the dollar weakens by $10\%$ against the British pound and the Swiss franc over time.

Cincinnati Co$.$ will be favorably adverselvaffected because dollar outflows and inflows will be reduced increased, but the dollar value of inflows outflows is larger and will hes Increased reduced to a greater dearee than the dollar value of inflowsioutiows.Assume the Canadian dollar is equal to $$\mathrm{.}90$ and the Peruvian nuevo sol is equal to $$\mathrm{.}30.$ The value of the Peruvian nuevo sol in Canadian dollars is: