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Please review the lecture notes and give a qualitative example of each of the following: How fluctuating exchange rates can be beneficial to MNCs and how they can affect MNCs negatively. You must give one example of each scenario Furthermore, your answer must be purely qualitative. In other words, you should not use any numerical data to answer this question.

no plagiarize please.

Lecture notes:

1. Multinational corporation (MNC): A firm that operates in more than one country.

2. Reasons for going overseas:

A. Expanded consumer base
B. Production efficiencies
C. Access to resources and technologies
D. Diversification

3. Exchange rates: The price of one currency in terms of another currency

4. Issues to deal with when venturing abroad:

A. Exchange rates
B. Economic, legal and political issues
C. Language and culture

5. 3 types of exposures faced by multinational firms:

A. Transaction exposure: Exposure arising from outstanding obligations (payables and receivables) in foreign currencies
B. Translation exposure: Also referred to as accounting exposure; arises when financial statements are translated into the home currency
C. Economic exposure: The long term impact of multinationalism on the competitive position of the firm

6. Multinational corporation (MNC) vs. Transnational corporation (TNC):

A. MNC: A firm that has operations in a foreign country regardless of the nature or size of the operation.
B. TNC: A firm that has a foreign subsidiary. TNCs are the “ultimate” forms of corporate multinationalism.

7. Corporate hedging policy: A policy thereby firms try to reduce exchange rate exposure by “locking in” the exchange rate at which a transaction can be executed. Firms can do so by entering into a forward contract (negotiated typically through a bank) or by purchasing currency futures on an organized exchanged. In an earlier chapter, we discussed financial options. Currency options can also be used as part of a company’s hedging policy.

8. Multinational capital budgeting: Generally more complex than domestic CB projects; in addition to the issues discussed in previous chapters, a host of other issues need to be addressed. Some of these issues are: Earnings repatriation, exchange rates, foreign taxes and political issues.

 

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