Question

Why do multinational corporations care about exchange rates? They move up, they move down. Sometimes in your favor sometimes not. Why the concern?

Answer 1

Ans:

Multinational corporations are companies that operate and own assets in several countries.Hence these companies undertake transcations with several currencies.It is important to care about the exchange rates, as changes in exchange rates can wipe out profits or increase profits.

As MNCs undertake transcations between countries such as export of finished goods,import of inputs,loans from foreign countries, the fluctuations in changes rates increase the risks and cost of operations for the companies.The concern of exchange rate changes can be understood with the type of risks they cause to the organization.The risk of currency fluctuations can be divided into transaction exposure risks,translation exposure risks and economic exposure risks.

Translation exposure risk is the changes that result to the financial statements of multinational corporations, Transaction exposure risk is the risk faced by companies when entered into international trade transactions. Economic exposure risk is the effect on financial performance of the company as a result of changes in the exchange rates.