Question: Some US-based MNCs have business in developing countries and have difficulty hedging their exposure to exchange rate risk. Their forecasts of future exchange rates are
Some US-based MNCs have business in developing countries and have difficulty hedging their exposure to exchange rate risk. Their forecasts of future exchange rates are subject to much error because the currencies in these countries tend to be very volatile and could possibly depreciate by 20% or more in a given year. Discuss how MNCs that have receivables in such currencies might be able to use exchange rate forecasts to prepare for possible weak currency scenarios, so that they can assess whether they will have sufficient dollar cash inflows to cover their debt payments
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