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Establish a subsidiary in malaysia to produce computers

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Reference no: EM133082127

Assume Harvey Noman, an Australian-based MNC, plans to establish a subsidiary in Malaysia to produce computers at a low cost, then sell them in Malaysia and export them to Australia and other countries. It will finance this investment with its own funds in A$, and will pay wages, utility bills and other operating costs in Malaysian Ringgits. In addition, suppose that the subsidiary will invoice all its sales in Malaysian Ringgits or in the importing countries' currency.

Discuss how Harvey Noman might face transaction exposure, economic exposure and translation exposure from exchange rate movements. How can the company reduce the translation risk with a forward contract?

Reference no: EM133082127

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