Reference no: EM132898150

1. The dollar at the current moment is quite strong and with the election coming to close many people would like to keep the price of the dollar up in order to keep the economy up and running. However, if the trade war is kept up that might change very quickly for everyone. This will also impact the cash flows of MNC's, as a man of the software companies are of foreign country branches and this will result in an increase of cash balances in dollars. On the other hand, cash inflows for MNC's will be lowered as the get less US dollars when foreign currencies are exchanged and cash outflows will be increased as they will get more cash in foreign currencies when Us dollars are exchanged.

2. I suspect the question posed may be outdated since the presidential election is, of course, upon us this year. The US dollar becomes more volatile during presidential elections due to the uncertainty of the outcome. Monetary policy agendas are often split where republicans prefer to tighten spending, decrease national debt and encourage private sector jobs whereas democrats often support public works and job creation, universal healthcare and other spending initiatives that can increase debt. Because of this, the US dollar will often react to whomever wins the presidency during an election year. However, because there are a great number of factors effecting the value of the US dollar, slumps or rallies tend to be short-lived after an election. Additionally, initial exchange rate reactions to a proposed change in monetary policy may not always stick since oftentimes these policies change or do not have the outcome some may have expected. Multinational corporations expecting a decline in the US dollar might consider hedging its receivables. An expected appreciation would probably be met with hedging payables. Cash flow timing adjustments can also provide MNCs with a means to avoid adverse effects to inflows and outflows during a period of uncertainty.

3. FX rates, or floating exchange rates, relate to the value of two currencies against one another. Given that we are in the year of presidential elections, it is important to look at the various implications behind the political changes, or lack thereof.

Pushing for more protectionist trade policies will affect the floating exchange rate between the US and other countries. The Mexican Peso fell by nearly 10% in the beginning of May when President Trump had a higher approval rating1. Along with this, a continued trade war with China will also lead to a decline in the currency of the Yuan2. JP Morgan however has publicly stated that a Biden presidency would provide a diplomatic approach to foreign policy that would reduce volatility. The company has also stated that they believe he would be a "neutral to slight positive4" for the equity market. While the presidential debates themselves can have a great effect on exchange rates, it would seem that either party would back fiscal policy to stimulate our economy, whether that be through quantitative easing or raising interest rates. These methods of increasing our currencies value may also increase the level of inflation and may detract foreign investment. It is also possible that interest rates will be lowered as a way to encourage foreign investment.

It is important for MNC's to monitor any ongoing changes in exchange rates in order to better prepare themselves for unfavorable future outcomes. MNC's may face a decrease in cash flows from foreign investment due to the increase in interest rates. Stimulation of the economy through the creation on new monies could increase inflation rate which would hurt an MNC's buying power. If interest rates are lowered, MNC's will experience greater foreign investment.