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Currency Risk, Definition, Influence of Foreign Taxation Risk on…

- - - - Result
        
        The company struggles with cash shortages, slows down production, and faces delayed payments to suppliers.
- - - - Profit shifting
      - Different tax rates across countries
      - Complex corporate structures
    - - Arm’s-length principle
      - Compliance with local regulations
      - Documentation requirements
    - - Pricing of internal transactions
        (between subsidiaries, HQ, foreign branches)
    - - Government scrutiny
      - Tax disputes
    - - Cost of legal defense
      - Disrupted operations
      - Financial risk
      - Higher tax liability
  - - - Higher operating costs
      - Unpredictable cash flows
      - Profit erosion
      - Reduced consumer demand
    - - Demand–pull inflation
      - Currency devaluation
      - Economic mismanagement
    - - Decreased purchasing power
      - Rising prices
      - Cost instability
    - - Contract risk (fixed-price agreements)
      - Exchange rate volatility
      - Price adjustment delays
- - - - Definition: Potential gain or loss between contract date and payment date when transactions are in foreign currency.
      - Why it matters in international business
        
        FX changes directly affect cash inflows (receivables) and cash outflows (payables).
        
        Foreign currency depreciates → receivables ↓ (you receive less in home currency).
        
        Foreign currency appreciates → payables ↑ (you pay more in home currency).
        
        High exposure → higher perceived risk, higher borrowing costs, weaker investor confidence.
    - - Definition: Arises when an MNC translates foreign subsidiaries’ financial statements into the parent company’s reporting currency. FX movements change the reported value of assets, liabilities, revenues, and profits.
      - Why it matters in international business
        
        Affects reported earnings even when operations are unchanged.
        
        Lower translated earnings → lower stock price + weaker investor confidence.
        
        Influences decisions on foreign investment, dividend remittances, and capital structure.
    - - Definition: Long-term impact of exchange-rate changes on future cash flows, competitiveness, and firm value. Affects all operations (pricing, sales, costs), not just contracted transactions.
      - Why It Matters in International Business
        
        FX shifts change future revenues and costs, even without foreign-currency contracts.
        
        Currency movements affect global competitiveness (products become cheaper or more expensive).
        
        Influences long-term decisions on market entry, sourcing, production, pricing, financing.
        
        Domestic-only firms can still be exposed if foreign competitors gain price advantages.