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Caterpillar an Overview

About Caterpillar
Caterpillar is the world 's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Caterpillar was founded in 1925, in Peoria, Illinois, which remains the base for much of today 's production. Their ideal environment stemmed from demand created during World War II, when large parts of Europe and Asia needed rebuilding. This paved the way for healthy growth and profitability right through to the early 1980s. Caterpillar as a global company from U.S base with 75% of employees and 70% of production residing in the U.S (Wall Street Journal,1992). It manufactures products in wholly owned or …show more content…

If the forecasted value of the peso in 90 days is sufficiently below the 90-day forward rate, the MNC may decide not to hedge. Forecasting may enable the firm to make a decision that will increase its cash flows.
• Short-term investment decision. Corporations sometimes have a substantial amount of excess cash available for a short time period. Large deposits can be established in several currencies. The ideal currency for deposits will (1) exhibit a high interest rate and (2) strengthen in value over the investment period.
EXAMPLE: Lafayette Co. has excess cash and considers depositing the cash into a British bank account. If the British pound appreciates against the dollar by the end of the deposit period when pounds will be withdrawn and exchanged for U.S. dollars, more dollars will be received. Thus, the firm can use forecasts of the pound’s exchange rate when determining whether to invest the short term cash in a British account or a U.S. account.
• Capital budgeting decision. When an MNC’s parent assesses whether to invest funds in a foreign project, the firm takes into account that the project may periodically require the exchange of currencies. The capital budgeting analysis can be completed only when all estimated cash flows are measured in the parent’s local currency.
EXAMPLE: Evansville Co. wants to determine whether to establish a subsidiary in Thailand. Forecasts

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