Mnc Exchange Rate Case Study

Introduction

Nowadays, the world of business becomes increasingly global, a lot of companies establish themselves as the multinational corporations (MNCs). They start to introduce the brand new products or services into market for gain more profit and become the leaders in the foreign market. However, most of the companies facing the challenge of fluctuations in currency exchange rates.

Exchange rate volatility is high risk towards MNC, it has been considered to make more uncertainty than fluctuations of interest rate or inflation rate. Exchange rate variability that results from the floating exchange rate system, it is the main sources of macroeconomic uncertainty that affect the operation of company in an open economy and influences the profitability

The foreign bonds usually had the higher yields than domestic bonds, it generate high return and diversify the portfolio. Therefore, the rapidly changing in exchange rate will affect the investment of the company in riskiness.

In addition, value of exchange rate will affect the cost of imports and exports. MNCs involved in many import and export activities, volatility of exchange rate will bring the positive or negative effects to the firms. In the exchange rate, the relationship of currency between the countries is opposite. For example, domestic currency appreciation causes the import cheaper. On the other hand, foreign currency appreciation causes the import expensive.

Therefore, MNCs need to always interact with foreign governments and other businesses partners in their respective foreign currencies for settle the cost problem, try to reduction of cost. Moreover, in the process of dealing with foreign currencies, any sort of currency exchange rate fluctuations can influence the firm’s expected future cash