This question is supposed to be solved by picking up one country and in introduction have to tell about hedging tools and risk management.

1500 words

QUESTION Transaction exposure exists when there are contractual transactions that cause a multinational corporation to either need or receive a specified amount of a foreign currency at a specified time in the future. The dollar value of payables could easily increase by 10 percent or more within a month. The dollar value of receivables could easily decline by 10 percent or more within a month, which might eliminate the profit margin on the sale of the product. For this reason, most MNCs may consider hedging the contractual transactions denominated in foreign currencies. By managing transaction exposure, financial managers may increase the MNC's future cash flows, or at least reduce the uncertainty surrounding the MNC's cash flows, and thereby enhance the value of the MNC. Required: Evaluate empirical literature on different derivative tools used to hedge and manage the risk raised by transaction exposure. QUESTION Transaction exposure exists when there are contractual transactions that cause a multinational corporation to either need or receive a specified amount of a foreign currency at a specified time in the future. The dollar value of payables could easily increase by 10 percent or more within a month. The dollar value of receivables could easily decline by 10 percent or more within a month, which might eliminate the profit margin on the sale of the product. For this reason, most MNCs may consider hedging the contractual transactions denominated in foreign currencies. By managing transaction exposure, financial managers may increase the MNC's future cash flows, or at least reduce the uncertainty surrounding the MNC's cash flows, and thereby enhance the value of the MNC. Required: Evaluate empirical literature on different derivative tools used to hedge and manage the risk raised by transaction exposure