Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Hedging Translation Exposure
Explain how a firm can hedge its translation exposure.
Expert Solution
Step 1
Exposure for translation occurs as MNC converts the financial details for consolidated financial statements of each subsidiary into their domestic currency. Although the exposure to translation does not impact the cash flows, many MNCs are worried about combined earnings and therefore triggers an equity price drop.
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