Question

A MNC corporation that does not have foreign subsidiaries, is not exposed to ____.

a.	transaction exposure
b.	economic exposure
c.	translation exposure
d.	All the above

Answer 1

Correct answer is C.

A MNC corporation that does not have foreign subsidiaries, is not exposed to translation exposure.

When a company has a reporting requirement to submit its financials in foreign currency its assets and liabilities are effected by exchange rate movements, this risk is known as translation risk or translation exposure.It occurs only when parent company consolidates  financials of a foreign subsidiary. Hence when the MNC does not have foreign subsidiary, it will not be exposed to translation exposure.

A company can be impacted by Economic exposure and transaction exposure even if it does not have foreign subsidiary.

Economic exposure can arise for any company no matter it does not have a subsidiary in foreign country.It is caused by unexpected currency fluctuations. Also, transaction risk occurs due to unexpected currency fluctuations when the company engages in purchase or sale transactions in foreign company. It impacts it cash flow movements. The MNC does not necessarily need to have a foreign a subsidiary for exposure to this type of risk.

Hope it clarifies!