Question

Consider Franco Co, the parent of a US-based multinational corporation (MNC) that uses forecasted exchange rates to assist with various business functions. Franco Co is deciding whether to deposit cash at a bank in the eurozone. The possible appreciation, or depreciation, of the euro affects the number of dollars the MNC ultimately receives. Franco Co uses a forecasted exchange rate of the euro to help them make a decision.
This is an example of using exchange rate forecasting to assist with_____"financing in foreign currency; short-term investment; capital budgeting; short-term investment; hedging; earning assessment" decisions, with the goal of improving the value of the MNC via influencing the______"the cost of capital; dollar value of foreign cash flows"

Answer 1

Answer:

This is an example of using exchange rate forecasting to assist with capital budgeting decisions, with the goal of improving the value of the MNC via influencing the dollar value of foreign cash flows.

Capital budgeting decisions have to do with decisions a company makes on investments that it would like to go into. Depositing money into a Eurozone bank account is that investment so this is a capital budgeting decision.

The goal of this investment is to improve the value of the company by gaining from an appreciation of the Euro so that a higher dollar amount can be acquired for the Euros held.