The Impact of US Dollar Fluctuations on Multinational Corporations

This report examines the implications of US dollar fluctuations on multinational corporations (MNCs). It begins by analyzing the current exchange rate between the US dollar and the Chinese RMB, highlighting the impact on international trade. The report discusses the effects of a declining dollar on the US economy, emphasizing the reduced value of US economic programs in international trade. It then outlines strategies for MNCs to mitigate currency risks, including holding currencies from strong banking systems, diversifying production, and utilizing forward contracts and specialized funds. The report also explores why politicians often speak positively about a decreasing dollar value, as it can create opportunities for investors and boost MNC profits. Finally, it provides a long-term outlook for the dollar, suggesting continued weakness, and concludes by emphasizing the need for MNCs to adapt to these fluctuations. The report references several academic sources to support its findings.

International
Management
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Author Note

Exchange Rate between US Dollar and
Chinese RMB
The exchange rate between US dollar and Chinese
RMB stands at one US dollar being equivalent to
6.91 RMB (Forrest et al. 2018).
This present exchange rate does not speak too
highly of US economic progress. It implies that US
goods in China are far cheaper than they were
before and Chinese goods cost more in the USA (Du
et al. 2018).
The current exchange rate is also not too different
from the exchange rate that was seen to be in place
in the year of 2008 when one US dollar was
equivalent to 6.87 RMB (Forrest et al. 2018).

What the Decline in the Dollar means for
the US
The decline in the value of the dollar is not
good for US economy at all as it means that
the value of the US economic program is
reducing greatly in the eyes of the rest of the
world, as far as international trade and
commerce is concerned (Forrest et al. 2018).

Best Strategy for MNC’s when faced with US
Dollar Fluctuations
The MNC should hold currencies with countries
that have very strong and centralized banking
systems
The MNC should immediately diversify when it
comes to the production of its goods and services
The dollar position should be potentially reduced
at a time when the dollar is seen to swing in
upward motion. Given the fact that the dollar is
one of the strongest of international currencies it
would not make sense for the MNC to sell off its
US dollars (Du et al. 2018).

Best Strategy for MNC’s when faced with US
Dollar Fluctuations
Forward Contracts should be used for
mitigating this currency risk.
The risk should be hedged with the help of
specialized and exchange traded funds (Du et
al. 2018).

Why Politicians speak highly of decreasing
US Dollar Value
Politicians speak positively about the US dollar
because a low dollar can present a number of
valuable opportunities (Seghezza and Morelli 2018).
Firstly, investors who invest their money in US MNC
stocks will be in a position to earn a significant
amount of money through their overseas ventures
(Seghezza and Morelli 2018).
Bottom lines are likely to get significantly boosted
as companies are now going to be able to send their
products across the globe at far lower rates
(Seghezza and Morelli 2018).

Why Politicians speak highly of decreasing
US Dollar Value
MNC’s tend to benefit a great deal when the
value of the dollar falls because products and
services of such MNC’s when consumed in
countries where the currencies are steering
ahead of the dollar will lead to huge profits
for such MNC’s (Deschrider and Peersman
2015).

Why Politicians speak highly of decreasing
US Dollar Value
US MNC’s will feel compelled to manufacture
goods and services in the home country that
is in the USA as the cost of foreign goods will
be much higher due to the decreasing value
of the dollar and this in turn will be great for
the US economy (Deschrider and Peersman
2015).

Long Term Outlook for the Dollar
Over the long term, dollar weakness is
expected as a global monetary policy
(Baumeister and Kilian 2016).
Euro is expected to appreciate further in
value (Baumiester and Kilian 2016).
The value of RMB is likely to remain static in
its value with regard to the US dollar
(Baumeister and Kilian 2016).

Concluding Thoughts
The value of the dollar is something that is likely to remain low for the long
term now.
There is no possibility of the dollar increasing in value through the value of
the Euro continues to appreciate.
Even the Chinese RMB is of almost the same value as a US dollar, making
Chinese goods in the USA quite expensive to buy, but US goods in China
rather easy to spend on.
The decline in the dollar is rightly spoken about in a positive light by
politicians because multinational firms can invest and get very good returns
when the dollar rate is low.
More and more companies will be interested in investing and doing business
in America if the value of the dollar is low. However it needs to be
remembered that this low value of the US dollar is not great for the
economic program of America. If the US dollar is steadily declining in its
value it implies that the economic value of the nation is also decreasing in a
slow and steady fashion in the eyes of the rest of the world, which is not
something that America ought to want for itself at all, I believe.

References and Bibliography
Baumeister, C. and Kilian, L., 2016. Understanding the Decline in the Price
of Oil since June 2014. Journal of the Association of Environmental and
Resource Economists, 3(1), pp.131-158.
De Schryder, S. and Peersman, G., 2015. The US dollar exchange rate and
the demand for oil. The Energy Journal, pp.263-285.
Du, W., Im, J. and Schreger, J., 2018. The us treasury premium. Journal of
International Economics, 112, pp.167-181.
Forrest, J.Y.L., Ying, Y. and Gong, Z., 2018. Where Will the US Dollar Go?.
In Currency Wars (pp. 501-526). Springer, Cham.
Pierce, J.R. and Schott, P.K., 2016. The surprisingly swift decline of US
manufacturing employment. American Economic Review, 106(7), pp.1632-
62.
Seghezza, E. and Morelli, P., 2018. Rule of law and balance of power
sustain US dollar preeminence. Journal of Policy Modeling, 40(1), pp.16-36
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