Multinational firms have some "unanticipated" transactions that occur without any advance notice. They should attempt to forecast the net cash flows in each currency due to unanticipated transactions...

For this module I want you to discuss the following topic: "Should a multinational firm risk overhedging?"Some have argued that exchange rate risk is irrelevant. One argument for exchange rate irrelevance is that according to purchasing power parity theory, exchange rate movements are just a response to differentials in price changes between countries. Therefore, the exchange rate effect is offset by the changes in prices. A second argument for exchange rate irrelevance is that investors in multinational firms can hedge exchange rate risk on their own. Another argument is that if a U.S.-based multinational firm is well diversified across numerous countries, its value will not be affected by exchange rate movements because of offsetting effects. Some critics also argue that if stakeholders (such as creditors or stockholders) are well diversified, they will be somewhat insulated against losses experienced by a multinational firm due to exchange rate risk.These contentions, in turn, have resulted in counterarguments from multinational firms. They argue creditors that provide loans to multinational firms can experience large losses if the multinational firms experience financial problems. Thus, creditors may prefer that the multinational firms maintain low exposure to exchange rate risk. Consequently, multinational firms that hedge their exposure to risk may be able to borrow funds at a lower cost. Instructions: To read the point and counter-point of this argument and express your own opinion on this topic :  HYPERLINK "javascript://" \o "View message list for Point: Yes" Point: Yes  Multinational firms have some "unanticipated" transactions that occur without any advance notice. They should attempt to forecast the net cash flows in each currency due to unanticipated transactions based on the previous net cash flows for that currency in a previous period. Even though it would be impossible to forecast the volume of these unanticipated transactions per day, it...