Advantages And Disadvantages Of Mncs

Words: 1138
Pages: 5

Theoretical explanation
Today, Multinational corporations is actively increase the importance in world economy through investment and foreign trade. Many countries are welcoming and attracting the MNCs to expand the operation in their county in term to allow MNCs bring skill, technology, management and various of network to boost economic growth (Kozo & Toshiyuki, 2008). As the popularity Multinational corporations (MNCs) grow rapidly the transaction between firms drastically increase (Kim & Park, 2014).
This situation make profit and loss vary difference by the unexpected rate of changes. Exchange risk volatility is defined as the effect of unpredictable movement currency rate changes on the value of firm or countries. It will affect one
…show more content…
MNCs must have skill and proactive in risk management in order to find the best alternatives. There are three type of exchange risk exposure to exchange rate fluctuation, transaction risk, translation risk and economic risk. MNCs are exploring the risk of changing exchange risk via many channels. As Michael (2006) stated, Transaction risk that is the risk that the contract had agreed but not yet settled, the longer the time of contract, the higher the risk exposure. For instances, a cross border sales which can affect the value of sale revenue. This phenomena not only the MNCs will be affected and local firm that did not involving cross border also will be indirectly affected. Translation risk can affect MNCs’ assets and liabilities by the changing value of host currency to home currency. The more liability and assets in denominated subsidiary company the higher the translation risk exposure. Economic risk is the ability of MNCs cash flow income changes to response the exchange …show more content…
Hosting MNCs able to transfer technology. Local firms in host countries able to transfer technology. Thus, local firms able to acquire managerial information and technical from MNCs. Besides, government provide policies to reduce the problem of exchange rate environment. In order to the exchange rate stability the common currency is introduced. A common currency able to achieve growth of economic and reducing the uncertainties (Kozo & Toshiyuki, 2008).

Furthermore, Takatoshi, Satochi, Kiyotaka, and Junko (2016) mentioned in this paper is more focused on the exchange rate in japan exporting firms. Variety of exchange rate risk management have to be identified such as what type of hedging should be adopted in MNCs. Japanese firm more likely use currency invoicing as substitute for derivatives hedging. They argued that, currency invoice have a wider choice for Japanese firm it include the Intra-firm trade, inter-firm trade, transaction cost of the currency and structure of production and distribution. Japanese firms tend to use yen invoicing in