Two of the risks companies face when competing globally are political risk and exchange rate risk. Political risk is the financial risk that two companies in different countries may be affected by the political climate between their two governments. Exchange rate risk is the risk that the domestic currency will appreciate or depreciate during and after the sale of a company’s products to a customer in another country. In this discussion, consider how these two risks affect the decisions a manager makes.
Please respond to all of the following prompts and include references
1. You are the CEO of a firm that has manufacturing facilities in an emerging market. Suppose that country’s government decides to impose trade restrictions requiring that all companies be majority-owned by domestic firms. What actions would you take in response to the government’s restrictions?
2. If you were a CEO, would you prefer a flexible exchange rate or a fixed exchange rate? Why?