Give a qualitative example of each of the following: How fluctuating exchange rates can be beneficial...

Give a qualitative example of each of the following:

How fluctuating exchange rates can be beneficial to MNCs and how they can affect multinational corporations negatively.

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Expert Solution

fluctuating exchange rate can be beneficial to multinational companies because they are exposed to various different countries

Beneficial exchange rate example-

If Indian company Infosys is exposed into having a receivable in American dollar of $600 in India as it has done service export, after 3 months, so currently it has $600 receivable after 3 months and after 3 months if the American dollar has appreciated 5% in respect to the Indian currency, the overall receivable of Infosys will increased by 5% and it would be equivalent to $630 (600*105%) in Indian rupees. Hence, it had overall lead to appreciation of The receivable due to increase of the exchange rate.

Negative exchange rate example-

Suppose in the above given example that dollar had depreciated by 5% in respect to the Indian rupees then the overall receivables after conversion into Indian rupees would be equivalent to $ 600*(100-.05)=$ 570

jeff jeffy answered 2 years ago

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