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MFI 442 International Finance-Individual Assignments II
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MFI 442 International Finance-Individual Assignments II Over the years, global businesses are increasing rapidly because most countries are attractive and have lucrative policies that attract foreign direct investments (FDIs). Foreign direct investments are simply business entities operated by a corporation in one country (the home country) but with subsidiaries in the foreign markets (the host countries) (Agarwal, 2009).A perfect example for FDIs is Multinational Corporations (MNCs) which have their parent company located in their home country but with subsidiaries in foreign markets. In most cases, FDIs are operated through joint ventures, franchises or mergers where the parent company of the MNC acquires other businesses in overseas markets (Chaurasia, 2008). The objective of this assignment, therefore, is to discuss and explain further the operations of MNCs and issues surrounding these corporations.
Hedging Transaction Exposure
Four of the Hedging Techniques Available To MNCs Hedging simply means minimizing or mitigating the effect of the exchange rate exposure. This risk is of three types namely, translation exposure, economic exposure and transaction exposure (Luo, 2001). A transaction exposure is a form of foreign exchange risk which results to loss or gains when operations are carried out or denominated in foreign currency (Hill, 2005). It is a short-term exposure that arises as a result of fluctuations in exchange rates. To mitigate or hedge the effects of this risk, an MNC can use any of the following four techniques. When selecting the method to apply, MNCs compare the expected cash flow from each one of these.
A).Futures Hedge- to lock in the future exchange rate, a futures hedge uses currency futures. For smaller amounts of money, standardized futures...

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