Running your MNC

Running Your MNC

Monitoring Exchange Rate Trends

The Canadian dollar, just like other currencies, has been fluctuating due to the uncertainty and economic disruption brought about by the corona pandemic. This trend is set to continue until the elapse of the epidemic. Therefore, analyzing the strength and trend of the Canadian dollar during this period would be hindered by the current state of the economy (Hofmann). If the pandemic ends, the dollar will decrease since the global economy will experience a recession. After this economic cycle, the Canadian dollar would appreciate. So far, the largest change recorded by the Canadian currency is -0.59%, which has resulted in the devaluation of the Canadian dollar.

Recognizing Exposure to Exchange Rate Risk

The exchange rate risk is a business risk in that it threatens the profitability of the business. In the event that the Canadian dollar appreciates against the dollar, the company would acquire higher value for the sales made. The appreciation of the currency would increase its value leading to increased profits (Hofmann). On the other hand, the devaluation of the Canadian currency would reduce the value of the currency. As a result, the business would earn less value from the sales, which would reduce its profitability. In eliminating this risk, the business should use a standard rate, preferably the US dollar, since it is more stable than other currencies.

The business is subject to transaction exposure seeing that it deals with two countries, both of which deal with a different currencies. The company imports the artistic products from China and exports them to Canada. The business faces transaction exposure and economic exposure, given that the changes in interest rate affect the company’s cash flow. The decline of the Canadian dollar would adversely affect the business’ profits. The firm also faces translation exposure, seeing that future currency changes would decrease the company’s cash assets.

Works Cited

Hofmann, Boris, Ilhyock Shim, and Hyun Song Shin. “BIS Bulletin.” (2020).

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Running Your MNC

Monitoring Exchange Rate Trends

Running your MNC

Use a business periodical or the Internet to determine how the value of the foreign currency of concern has changed in each of the last five weeks. Does it appear that there is a trend over the last five weeks? What is the mean percent-age change over these weeks? If you believed that the currency’s value would continue following the recent trend, would it appreciate or depreciate in the near future?

Recognizing Exposure to Exchange Rate Risk

Recall that when you created your business idea, it was assumed that your receivables would be denominated in the foreign currency of concern upon the sale of your products.

1. Describe your exposure to exchange rate risk. That is, describe the exchange rate conditions affecting the performance of your business.
2. Is your business subject to transaction exposure? Economic exposure? Translation exposure? Explain why your business is or is not subject to each of these types of exposure.