Chapter 15, Problem 9QA

The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following?  A.  Interest rate disparities   B.  Short-run exposure to exchange rate risk   C.  Long-run exposure to exchange rate risk   D.  Political risk associated with the foreign operations   E.  Translation exposure to exchange rate risk

Investors and MNCs exporting or importing goods and services or making foreign investments throughout the global economy are faced with an exchange rate risk,which can have severe financial consequences on firms profitability,cash flows,and their market value,if not managed appropriately. MNC's use a number of external techniques  of risk(exposure)management and resort to contractual relationships outside thier companies in order to reduce (or redistribute)the risk of foreign exchange losses.What are the determinants of hedging currency risk or foreign exchange exposures which pose risks to MNC's cashflows,competitiveness,marker value and financial reporting.

Companies go global for various reasons. Although becoming a multinational corporation provides prospects for high returns and diversification, it makes financial management more complicated for financial executives and managers. Based on your understanding of the factors that complicate financial management in multinational firms, complete the following statement: Compared to domestic corporations, multinational corporations have (increased or reduced) risk from exchange rate fluctuations.