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Members Tiêu Vũ Cao Huỳnh Nguyễn Thị Huyền Ngân Lê Sinh Nhật Hồ Võ Hạnh Ngọc Nữ Chu Thị Mai Phương
to manage the exchange rate risk in multinational corporation ?
Topic 3: How
A.Definition of multinational corporation
B.An example of multinational companies in VietNam
C.Measures to manage the exchange rate risk
A.Definition of multinational corporation
Multinational corporation , often abbreviated as MNC(Multinational corporation) or MNE (Multinational Enterprises),is the concept to production companies or service providers in at least two countries. The large multinational corporations have the budget exceeded the budget of many countries. Multinational companies can have great influence on international relations and the economy of the country. Multinational companies play an important role in globalize process.
Petro Vietnam National – PVN 2. . Hoang Anh Gia Lai Group Dairy Products Joint Stock Company Vietnam – Vinamilk 5. Military Telecom Corporation – Viettel FPT Group 3. An example of multinational companies in VietNam 1. 4.B.
Rolex SA . The Walt Disney Company 10.6. Coca-Cola Company 8. Microsoft Corporation 9. International Business Machines Corporation 7.
That’s why measures to limit exchange rate risk is essential for business.C. Measures to manage exchange rate risk Exchange rate risk is the risk arising from exchange rate fluctuations affect the expected value in the future. any activity that generate transactions in any currency which also contains exchange rate risk. In general. Multinational companies often have to endure exchange rate risk Exchange rate risk has often bring huge losses to the enterprise. .
no fee (if enterprises have active in both of export and import).1. Using import and export contracts in parallel A method for hedging exchange rate risks by conducting both of export and import contract at the same time with same value. effect. Advantage: simple. Disadvantage: hard to find two contracts of import and export with same time . same value .
Export contract Same time Same value Import contract Foreign currency increased. import deficit Export deficit. Domestic currency decreased Foreign currency decreased. import surplus The money of profit will replace for the loss . Domestic currency increased Export surplus.
easy abuse to another work => waste money . no fee Disadvantage: hard to account . Using reserve fund Bussiness Profit $ Loss $ Reserve fund Advantage: simple.2.
It will help enterprises manage exchange rate risk. We can chose domestic money for payment.3. . Chosing payment money 3a. in contrast. importers and borrowers will benefit from using weak currency to payment. exporters and lenders likely to be paid strong currency. However.
import and export prices will be controled to down.3b. Apply flexible (change) price: if the rate of payment currency increased. prices will be increased. Price of imports and exports decrease Exchange rate of currency payment Price of imports and exports increase . and if the rate of currency payment reduced. investment to country which have weak currency will benefit for enterprises Disadvantage: need high competition. Increasing or decreasing the rate of currency payment by mutual agreement Advantage:limited loss from exchange rate risk.
4. Applying risk-sharing provisions Contract Exchange rate risk L o w Company A Agree -ment Company B High Choose another currency payment Payment Payment Advantage: reduce costs and risks by payment Disadvantage: difficult to negotiate rate risk .
importers should accelerate payment (lead) and vice versa Netting: if foreign currency increases.Netting Push risk for partner Not push risk for partner Bill with domestic currency: manage exchange rate risk. Technical insurance contract 1. but depends on buyer Strategy lead/lag: if currency payment decrease . foreign currency decreases.Strategy lead/lag 3. the payment is domestic currency . the payment is foreign currency.Bill with domestic currency 2.5. exporters should delay payment (lag) .
Using derivatives market .6.
negotiations between the parties. Only two parties to the contract. . Forward contract Buyer (Bank or customer) Agreement Seller (Bank or customer) Fixed future date Fixed rate Fixed amount Terms of forward contracts can be agreed upon. the price agreed upon by the two parties together.6a. so each side depends only on the other party in performing the contract. When there is a price change on the spot market . risk will increase when party do not perform the contract. Only two parties participate in the signing.
noting the market. . delivery date and place of delivery are set specifically on the market. To participate in the futures contract. there should be a deposit in your account and set the market to ensure compliance with the contract between the parties. and are set. each contract are set a certain amount of goods . so the profit and loss account are identified every day.6b. there is no negotiation between the two parties to the contract Futures contracts are re-paid daily. Future contract Buyer Futures Exchanges Seller Fixed time Fixed amount Changing price daily Deposit account Only the price is agreed upon.
Call option: The owner of call option has the right to buy an asset at a certain price. .6c. at a certain time. Option contract + It is contract giving the right. + Two types Options: . but not the obligation to buy or sell underlying assets at a fixed price during a certain period of time. . at a certain time.Put option : The owner of put option has the right to sell an asset at a certain price.
Long call option .
Long put option .
Short call option .
Short put option .
Forward contract • Fixed future date • Fixed rate • Fixed amount • Must do contract • Term can be agreed Future contract • Fixed time • Fixed amount • Changing price daily • Deposit account • Must do contract • Condition by future exchanges Option contract • Can do contract or not • Fixed future date • Fixed price • Two types option: call and put .
the exchange rate risk has a large effect to the business results of enterprises.Summary The use of derivative instruments in Vietnam at present limited by the level of international business. as well the expected rate. The banks have not yet found ways to help customers quickly access this service. based on which selection of risk management solutions suitable rate. financial management officers in modern firms. for stable growth target.D. The problem is that business must timely capture. . limited to minimum impact from exchange rate fluctuations. its sustainability. analyze the causes of exchange rate fluctuations. In short. These solutions are useful materials to help businesses perform effectively reduce risks of exchange rate fluctuations. especially small and medium sector are weak.
what will happen to price of import and export? No change B.Gameshow When the exchange rate of currency payment increase. and we use apply flexible price to manage exchange rate risk. D . Increase A. Decrease C.
Tax C. Exchange rate risk I .What is a problem that multinational corporation must be fact? A. Interest rate B.
what does MNC used forward contract? A.In 2010. Coca-cola V . American Standard B. Unilever C.
Foreign currency increased.How will export be changed? A. domestic currency decreased. Surplus B. Deficit C. No change E .
Which bank use option contract first in VietNam? A. Eximbank A . Agribank C. Sacombank B.
Agreement B. Amount of asset R .What is the difference of forward contract and future contract? A. Exchange rate C.
Chicago Board of Trade (CBOT) B.Where is forward contract traded? A. Over the counter (OTC) C. London T .
The end Thanks for listening .