Foreign exchange rate fluctuations can impact multinational companies in several ways: 1. Operating cash flows of companies can be affected if exchange rate changes alter the relative competitiveness of companies in domestic and foreign markets. 2. The value of a company's assets and liabilities reported in its domestic currency can change as foreign currency values fluctuate. 3. A Japanese car maker selling vehicles in the US could see its profits decrease if the dollar depreciates against the yen, making its cars more expensive. Conversely, profits would increase if the dollar appreciated against the yen.

1. Foreign Exchange Risk
Introduction
Case 1- Japanese Car Maker In US- Situation is that $
depreciates against Yen on the other hand assume
that $had appreciated against Yen what would the
impact in both the situtation

2. Case II
• Japan Electronic Mft in Japan and sells
them to US firms –what would be the
impact on yen when $ appreciates ie
30/$from 23/$

3. Out come of the above two
Example
• 1. influence on the firms operating cash
flow
• 2. domestic currency values of its asserts
and liabilities

4. Risk
• Operating Risk
• Transaction Risk
• Translation Risk or Accounting Risk

5. Operating Risk
• Fluctuating Exchange Rates can seriously
alter the relative competitive position of
such firms in domestic and foreign
markets, affecting their operating cash
flow.

6. Situation
• US software Company has a wholly owned
Taiwan Subsidiary, Wip Computers, that Mft and
sells computers at Taiwan. Wip imports the Chip
from infosis, which sells them for $500 per unit.
The current exchange rate of $1.50 per
Taiwanese dollar. Assuming that the exchange
rate will remain the same and the company
expects to sell 50,000 units per year and wip
faces 50% income tax in Taiwan

7. • At a selling price of 1000 TD per unit. The
unit variable cost is 600 TD which
comprises of 320 PS for the imported
inputs and 280 PS for the local sourced
inputs. The fixed over heads of 4 million
PS regardless of the output. what is the
operating cash flow in PS and that in case
of TD it is noted that the firm has to make
an allowance of I million PS .