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Essay / Research Paper Abstract
This 3-page paper discusses the impact of currency fluctuations on multinational companies. Bibliography lists 2 sources.
Page Count:
3 pages (~225 words per page)
File: AS43_MTcurrfluc.rtf
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Unformatted sample text from the term paper:
A fluctuation in a countrys currency can have a definite impact on the companys ability to do business. Lets take, for example, a
U.S. company that has a wholly owned subsidiary in Mexico. This subsidiary manufactures component parts for the U.S. assembly operation, and is financed by debt from a U.S. bank. However,
the companys analyst has told the companys CFO that the Mexican peso is anticipated to depreciate 30% against the U.S. dollar on the foreign exchange markets. What actions does the
CFO need to take to ensure mitigation of any potential fallout from this fluctuation, especially in light of the fact that the Mexican subsidiary is being financed with U.S. debt?
Before determining the actions our CFO must take, it would first be helpful to understand why, exactly, currencies fluctuate. From a basic sense,
currencies are investments - people buy and sell them based on supply and demand. If there is a particular demand for a particular currency, then the "price" of that currency
(i.e., the value) goes up as more people want it. What drives investors toward a particular currency? Supply and demand is typically driven by a particular countrys macroeconomic policies and
trade policies (FX Invest, 2010). Furthermore, we know that a rise in the domestic currency (against the foreign currency) means the foreign
investment will result in lower returns when its converted back to the domestic currency (Investopedia, 2010). There have been times during which foreign debt used to purchase domestic assets has
caused bankruptcy, simply because of the domestic currencys fluctuations (Investopedia, 2010). In this particular case study, we dont have many of the particulars
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