Question

How to measure the impact of currency volatility on the exposure of an MNC’s Portfolio?

Answer 1

Mncs generally anticipate foreign inflows or outflows of cash flows which the company may incurr or receive according in short period with reasonable accuracy.

After which mncs generally convert a point estimate or range of chosen currency to standardize the exposure of currency.

The fluctuation of exchange rate will definately affect the mncs cashflows through different risk such as transaction risk,economix exposure risk, and translation risk.

Mncs may use different type of hedging strategies.They may use internal method and external method.

Internal method works on management of company to protect mncs from exchange rate fluctuation by working on co's financial's.they follow such pricing policies,balancesheet hedgingand netting in short term

Where as external method is to work on relationship with other esteemed co. To decrease exchange loss. By currency futures currency options.