Table of Contents
Transaction exposure 3
Translation exposure 4
Economic exposure 5
International debt financing6
International equity financing 5
International trade financing5
Part II 4
The firm faces with transaction exposure when the exchange rate movements can affect to the financial results in international transaction after the firm is legally obligated to complete transactions (Shapiro, 2010). Typical of transactions that expose the firm to transaction exposure include ...view middle of the document...
It will be mattered if the changes of foreign exchange rate usually change the value of the parent’s liabilities and assets are involved. In order to cope with this problem that MNC have to give the solution to be resolved.
For example, Toyota in Vietnam has reduced their translation by the effective way they use the forward contract and future contract when they sell the cars. The customers who buy the car can pay the price in future contract with higher priced, if Vietnam Dong (vnd) is depreciated, the gain of generated from the forward contract position that helps to offset the translation loss. Furthermore, the home currency (Vietnam) subsidiary sells the currency that they get to receive the earning forward. By the way to create the offsetting cash outflow in home currency that helps for parent company will be easily to consolidates financial in order to reduce translation exposure.
Economic exposure refers to the impacts of the exchange rate fluctuations that helps making of influences on the company future cash flows. Cash flow could be affected by the exchange rate movements but it is not directly associated with foreign transactions.
For instance, economic impact of the currency exchange rate on the subsidiary of Cocacola Co. in Malaysia required is very complex due to these change can cause Malaysia’s Cocacola Co. has adjusted to the operating and financing of Cocacola Co. In order to fix this problem, that company determined to reduce economic exposure by the way to assess the sensitivity of the cash outflow and inflow to various the exchange rate scenarios. And they reduce their exposure by restructuring the operation to balance the exchange rate sensitive with the cash flows. The subsidiary of Cocacola Co. in Malaysia gets the earning before taxes that related to the Malaysian Ringgit strength since the higher expenses more than offset higher revenue when the Malaysian Ringgit go strengthen. The company understands that restructuring the operations is complex but they are confident to get potential benefits before restructuring their operation with high cost. For reducing economic exposure that Cocacola Co. has reduced Ringgit materials and borrowing less in Malaysian Ringgit.
International Debt financing
International debt financing can be defined as the total amount of money it owes for MNCs, through the insurance of bonds and other debt instruments to organization on foreign soil (Pilbeam, 1998). This involves borrowing money from investors or lenders with understanding of the full amount repaid in the future and within of the interest.
When MNCs consider the International debt financing that lead to have a similar set of the options, they can engage in the public placement of the debt in their own country or global debt offering. Moreover, the MNCs uses the International debt financing in differences of currencies in order to hedge the cash flows that they earn in these currencies...