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Multinatinal Enterprises and their payments and receipts in foreign currency and the effect on their real income

Question

An MNE is a multi-national enterprise, a company that has operations in more than one country. When such a company prices its product, receives its revenues, denominates its costs, and pays its workers and suppliers in terms of US dollars, there is no effect on its revenues or costs when exchange rates change. But when prices and costs are in terms of foreign currencies, an MNE's revenues and costs are affected by exchange rate changes. So select the company, describe its activities. State whether it prices its products in $ or a foreign currency. State whether it pays its suppliers and workers in the currency of the foreign country or dollars.

Select a U.S. multinational company and respond to the following questions:

  • In terms of currency denomination, describe how the firm prices its revenues and costs. For MNEs with multiple foreign operations, consider any two of those operations and the contribution they are making to the parent firm's profits.
  • What means do they use to hedge against exchange rate risk?
  • Using this information, what do you think would be the effect of increases/decreases in the dollar’s exchange value on the firm’s profitability?
  • Assuming that it pays its workers and suppliers in the foreign country's currency, and receives the foreign currency in payment from its foreign customers, what would happen to the company's revenues, costs and profits if the foreign currency appreciated? Explain.
  • What would happen to the company's revenues, costs and profits if the foreign currency depreciated? Explain.

Summary

The question belongs to Economics, particularly Macroeconomics and it is about multinational corporations and the payments and receipts made in foreign currency and its effect on the corporation’s real income. An example of Apple has been given in the solution. The solution gives details about how Apple safeguards itself during its payments and receipts.

Total Word Count 1265


 

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