Question

Exposure to Exchange rates. McCanna Crop., a U.S firm, has a french subsidiary that produces wine and exports to various European countries. All of the countries where it sells its wine use euro as their currency. which is the same currency used in France. is McCanna Crop. exposed to exchange rate risk?

Answer 1

Yes Mc Canna corp is exposed to exchange rate risk.

McCanna is a U.S based company whose local currency is US Dollars. it supplies it product to its subsidiary to sale in European countries. Although it subsidiaries is in European countries and all the sales are in euro which is local currencey for subsidiaries. But in the hands of McCanna Corp. when it will repatriate the revenue from its subsidiares then he will be exposed to exchange rate risk as becuase its subsidiries is having Euro but McCanna corp. local currency is Dollar and so there will be exchange rate risk. McCanna can counterfiet this risk using various hedge statigies.