Question

1. According to text, the valuation of an MNC with foreign subsidiaries is directly affected by exchange rate fluctuations, foreign political conditions and foreign economic conditions.

a. Explain how each of the above 3 factors can affect the valuation of an MNC with foreign subsidiaries.

Answer 1

MNCs- Multinational companies are the companies, operating in different countries. Their valuation and revenues are affected by these factors:

Exchange rate fluctuations- Currency fluctuations affect the revenue of the companies, Companies operate in other countries, sometimes value of domestic currency appreciates or depreciates in terms of foreign currency, it has an impact of companies' revenues and profits.

Foreign political conditions- Government of any country play an important role in business, If there are political changes in a foreign country, it may affect the business of multinationals. If new Government is coming, it can come up with new laws and regulations that may or may not be favorable for multinationals.

Foreign economic conditions- Foreign economic factors like inflation, interest rate, monetary policy, tariffs, excise duties etc. affect the business of the multinationals. Due to inflation, prices of commodities increase as the demand increases, companies become able to increase the production and get more revenues, interest rate cut also gives boost to the revenues of companies as they take loan at lower rate and produce more goods.