Question

What is a multinational corporation (MNC)? How would exchange rates affect the MNC’s total revenue and profits? How can the MNC hedge or reduce foreign exchange risk and/or political risk?

Answer 1

MNC is a company that has its assets and subsidiaries in many countries. Since the company is present in many countries apart from the home country so it will have to convert the income from other countries' currencies to the home country's currency. The conversion will be done on exchange rate. Hence, the exchange rate affects the total revenue and profits.

This kind of foreign exchange risk can be hedged by investing in the fixed income securities of that country. For example: If a MNC has subsidiary in India then the foreign currency risk can be reduced or hedged by investing in the fixed income securities of India.