Question

how does a multinational corporation chose to deal with its exchange rate risk.

minimum 100 words

Answer 1

Some of the measures that a multinational adopts for dealing with its exchange rate risk are:

1] Setting up production facilities in the country in which they source major raw materials or other inputs. This will help in avoiding exchange rate fluctuations in payments for inputs.

2] Netting of interunit payments such that, interunit obligations in different currencies are set off against one another in a manner that will limit the impact the of exchange rate fluctuations.

3] Entering into currency swaps and other derivatives to minimize the exchange rate of fluctuations.

4] Invoicing inter unit transactions in currencies that will help reduce the impact of exchange rate fluctuations.