Consider a U.S.-based MNC parent, Triloo Inc., that owns subsidiaries in the France, Mexico, and Australia.

Suppose that the Mexican government decreases corporate taxes in Mexico, which includes Mexican Triloo subsidiaries.

This decrease in corporate taxes in Mexico will most likely decrease or increase the expected cash flows denoted in pesos, leading to an increase or decrease in the value of Triloo Inc. This is an example of exposure to international economic conditions or exchange rate risk or international political conditions.

Suppose that Triloo Inc. expects cash flows from its French subsidiaries of 16,000,000 euros at the end of the current time period. Management at Triloo forecasts the exchange rate to be $1.70 per euro at the end of this time period.

This means that Triloo will have an estimated $35,360,000 or $27,200,000 or $19,040,000 or $32,640,000 in cash flows from French subsidiaries at the end of the current time period.

Suppose that, after further analysis, management at Triloo now forecasts the euro to weaken against the dollar. Triloo expects the exchange rate at the end of the current time period to be $1.60 per euro.

This means that Triloo will now have an estimated $28,160,000 or $33,280,000 or $30,720,000 or $25,600,000 in cash flows from French subsidiaries, which represents a decrease of $1,600,000 or $1,280,000 or $1,440,000 or $1,760,000 from the companys original forecast.