In the last unit we studied about the management of economic and operational exposure. Economic exposure refers to the extent to which the economic value of a company can decline due to changes in exchanges in exchange rate. It is the overall impact of exchange rate changes on the value of the firm. Managing economic exposure is very important for the long-run health of an organisation than managing changes caused by transaction or translation exposure.
In the present unit you will study about the management of MNCs. Reflecting the trend towards more liberal world financial markets, major corporations throughout the world have begun to internationalize their capital structure by raising funds both in the domestic as well as in the foreign market. An MNC’s cost of capital may be lower than that of a domestic firm in the same industry due to its size advantage, access to international capital markets and an ability to stabilize cash flows through international diversification. Concurrently, MNCs whose operations are geographically well diversified will tend to have a lower systematic risk than those operating mainly in the domestic market.