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What types of exchange rate risks do multinational companies face?
One type of exchange risk faced by multinational companies is transaction risk. If a company sells products to an overseas customer it might be subject to transaction risk. If a UK company is expecting a payment from a US customer in June and the invoice was made in January, the exchange rate is bound to have changed during the period. If the deal was worth ?1,000,000 and the american dollar compared to pound sterling weakened from US$1.40 in January to US$1.50 in June, the UK company would loose ?47,619 (Appendix A).
Economic risk is another type of exchange risks companies have to consider when dealing globally...
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