Foreign Exchange Currency Risks And Accounting Issues Faced By Mncs

792 Words Jun 17th, 2015 4 Pages
In today’s global economy many multinational corporations (MNCs) are investing or operating their company internationally to maximize their profits. Operating in other countries comes with various risks faced by MNCs. One of the risk is the financial risk involved with the foreign currency exchange markets. Many of the MNCs deal with more than one national currency and hence the changes in the foreign currency exchange rate can have an adverse effect on the Corporation’s profits. This paper will examine the various foreign exchange currency risks and accounting issues faced by MNCs and what they can do to manage this risks.
One of the risk MNCs faced is the finance risk involved with a foreign exchange market, specifically transaction exposure. This risk exists when the exporter allows the buyer to pay in a foreign currency or when the importer is required to pay in foreign currency. Due to the fluctuation of the exchange rate, this can create uncertainty with respect to the cash flows associated with foreign currency transactions. If the corporation is the exporter and the foreign country denominate the transaction, it’s exposed to the risk that the possibility of the foreign currency will decrease in value between the date of the sale and the date of the payment (Doupnik, 2015). If this occurs, the transaction will result in a loss for the organization because the value of the foreign payment when it is converted to its home currency will be reduced. This can…

Related Documents