Page 283 - DMGT514_MANAGEMENT_CONTROL_SYSTEMS

Management Control Systems

Notes Financial Contracts

1. Forward market hedge
2. Future market hedge
3. Option market hedge
4. Money market hedge

Operational Techniques

1. Exposure netting

2. Heading and lagging
3. Hedging by choosing the currency of invoice
4. Hedging through sourcing

Self Assessment

Fill in the blanks:
9. Changes in …………………. can affect not only firms that are directly engaged in
international trade but also purely domestic firms.
10. Translation exposure arises from the need to “translate” foreign currency assets or liabilities
into the ……………………… for the purpose of finalising the accounts for the given period.

Task Give examples of various multinationals that follow each of the following given
structures.

14.7 Summary

 In multinational organizations the top management’s toughest challenge is to balance the
company’s global needs with its need to adapt to country level differences.
 Several factors like distance, diversity, uncertainty, degree of control etc make control
more difficult internationally than it is domestically.
 The five aspects of the international control process are: (i) Planning, (ii) Organisation
Structure, (iii) Location of decision making, (iv) Control mechanism, and (vi) Special
situations including the dynamics of control.
 Foreign Exchange exposure results in foreign exchange risk due to anticipated variability
in exchange rates.

14.8 Keywords

Income Tax: An income tax is a direct tax i.e., one that is paid directly by the tax payer on whom
it is levied.
Macro Risk: Where all foreign operations are affected by adverse political developments in the
host country.

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