Exposure to Terrorism Arkansas, Inc., exports to various less developed countries, and its receivables are denominated in the foreign currencies of the importers. It considers reducing its exchange rate risk by establishing small subsidiaries to produce products. By incurring some expenses in the countries where it generates revenue, this firm can reduce its exposure to exchange rate risk. In recent months, several countries to which it exports have experienced terrorist attacks. Now Arkansas is questioning whether it should restructure its operations. Its CEO believes that its cash flows may be less exposed to exchange rate risk but more exposed to other types of risk as a result of the restructuring. What is your opinion?
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