Types of exchange rate exposure


I need assistance with the given questions.

ABC, Inc. is a MNC based in the US. It has subsidiaries in Germany, Japan and Mexico. The subsidiaries sell consumer products on their local market and do their accounting using the local currency. The products they are selling are manufactured by ABC, Inc in the US, which, of course, does its accounting in USD.

1. Discuss the three types of exchange rate exposures for ABC, Inc. Explain how, for each of these three types of exposures, a depreciation of the USD against the local currencies could influence the earnings of the MNC.

2. What should ABC do if they expect the USD to keep depreciating against the Euro during the next two years?

3. What should ABC do if they expect the USD to appreciate against the Yen during the next two years?

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Finance Basics: Types of exchange rate exposure
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