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

POINT:Yes. An MNC's 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 MNC's expected spot rates, the MNC may accept a project that it should not accept.

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