Question

In 200 words, discuss the effect of currency devaluation and revaluation and its effects on Multinational corporations. How can multinational corporations cope with these changes that are rapidly evolving in a highly challenging market environment?

Answer 1

Effect of currency devaluation would be visible into the overall performance of the multinational corporation because they will have to understand the impact of transaction risk and translation risk along with exposure risk into their overall books of accounts.

Multinational corporations are generally working into different countries and they are generally exposed to various kinds of exchange rate fluctuation risk and these operations are getting affected through changes in the exchange rate across the world so when there would be exchange in the currency value of one country in respect of other, these multinational corporation would be having a impact on their overall profitability so they will need to hedge their risk related to currency rate fluctuation in order to to minimise the impact of advertisements in currency fluctuations.

Multinational corporations can cope with this rapidly evolving challenging market environment by taking exposes into the derivative contracts like futures and options along with forward rate agreement and other risk sharing agreement that will help them to mitigate the risk arising out of foreign exchange fluctuations.