How does exchange rate forecasting affect the capital budgeting and long term financing
decisions of multinational corporation (MNC)?
Answers
Explanation:
This paper deals with arising challenges in forecasting of exchange rates as mandatory financial activity with which Multinational corporations (MNC) are dealing with. Methodology that is used in this paper is mostly analytical and comparative in nature, based on observed research papers and knowledge of globally recognized authors (among others Madura and Fox). This paper deals with process of choosing relevant source for forecasting exchange rate and description of risk assessments of forecasting methods. Basic concepts of forecasting of exchange rate are presented as well as risks on side of Multinational Corporations related to exchange rate variation and exchange rate management. In addition, there is described very close relation between decision of management for investments, loans, hedging, budgeting on short and long run on one side and further measuring of specific risk exposure of Multinational corporations. Also, in paper are displayed systems for risk measurement which are highly important for resolving this specific risk issue. As most of economics literature states, long term and short term forecasting should be performed with different analyzing techniques with usage of different models and moreover long term forecasting is not reliable for decision making processes. Results of paper are summarized in conclusion and represents observation remarks on challenges that Multinational Corporation deals with when considering necessity of forecasting exchange rate. Downsides, strategy enablers and alternatives to traditional forecasting of exchange rates have key role in further determination of decision-making process. This paper has value for multinational corporations, brokerage companies, and educational institutions.