Calculate the loss or gain compared to its current dollar

Reference no: EM133138472

International Finance

Question 1: Critically discuss why multinational corporations may be riskier than companies that operate on the domestic market only.

Question 2: KZP Co, whose home currency is the dollar, trades regularly with customers in a number of different countries. The company expects to receive €1,200,000 in six months' time from a foreign customer. Current exchange rates in the home country of KZP Co are as follows:

Spot exchange rate: 41780-42080 euros per $

Six-month forward exchange rate. 42302-42606 euros per $

Twelve-month forward exchange rate: 42825-43132 euros per $

Required:

Calculate the loss or gain compared to its current dollar value which KZP Co will incur by taking out a forward exchange contract on the future euro receipt, and explain why taking out a forward exchange contract may be preferred by KZP Co to not hedging the future euro receipt.

Question 3: A common example of political risk is countries that are in political upheaval. Many countries are experiencing changes in social attitudes and perspectives as of late, causing unrest, changes in politics and political movements that are disrupting economies. Relatively new to the scene of political risk is technology.

Define political risk and elaborate how a multinational company can manage its exposure to political risk.

Reference no: EM133138472

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