Uncertainty Surrounding MNC Cash Flows
• Exposure to international economic conditions
• Exposure to international political risk
• Exposure to exchange rate risk
Exposure to international economic conditions.
If economic conditions weaken, the income of consumers becomes relatively low, consumer purchases of products decline, an MNC’s sales in that country may be lower than expected.
This results in a reduction in the MNC’s cash flows, and its value.
Exposure to international political risk
Political risk in any country can affect the
level of an MNC’s sales.
Example:
A foreign government may increase tax.
Consumers in a foreign country may boycott the MNC.
Political actions can reduce the cash flows of the MNC.