Should MNCs Use Forward Rates to Estimate Dollar Cash Flows of Foreign Projects?

POINT: Yes. An MNCs parent should use the forward rate for each year in which it will receive net cash flows in a foreign currency. The forward rate is market-determined and serves as a useful forecast for future years.

COUNTER-POINT: No. An MNC should use its own forecasts for each year in which it will receive net cash flows in a foreign currency. If the forward rates for future time periods are higher than the MNCs expected spot rates, the MNC may accept a project that it should not accept. WHO IS CORRECT? Use the Internet to learn more about this issue. Which argument do you support? Offer your own opinion on this issue.