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, it reduces its exposure to exchange rate risk. Since September 11, 2001, when terrorists attacked the United States, it has questioned 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 restructuring. What is your opinion?
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