Foreign Exchange Lecture 8

Question 1

What factors impact the FX rates of currencies

Answer 1

Several factors, including interest rates, inflation, economic performance, political stability and market speculation impacts the foreign exchange rates of currencies

Question 2

What areas of an MNCs operation can an FX impact

Answer 2

Foreign exchange rates can impact various areas of an MNC’s operation, including profitability, competiveness in international markets, cost of goods sold, financial reporting and cash flow management.

Question 3

What strategies can MNCs utilise to reduce FX exposure

Answer 3

MNCs can employ various strategies such as natural hedging , financial hedging through derivates, currency diversification , operational hedging, and contractual strategies to mitigate foreign exchange exposure.