Can an MNC reduce the impact of translation exposure by communicating? Explain.

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Expert Solution

Translation exposure is the risk that a Companies assets and liabilities etc. Will change in value as a result of change exchange rates. In case of MNC it is frequently possible because they hold portions of Assets and liabilities etc. in other Countries and in local currencies by the way of subsidiaries or directly.
Translation gains and losses may affect the companies profits and losses and overall earnings. To counter this exposure risk, companies can use various techniques. For example use of consolidated techniques or cost accounting evaluation procedures.
If the company uses expected future cash flows to calculate the earnings, in that case The parent company and the subsidiary must communicate on a regular basis so that the records of the transactions and cash flows could be maintained properly. Therefore communication can reduce the impact of translation exposure in case of a MNC.

jeff jeffy answered 1 year ago

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