The indexation clauses illustrate the extreme positions situations in- which the entire independence curable foreign exchange risk is shared by one of the parties only. In practice, the rec parties may stipulate hat loss incurred during the ‘intervening period (the dates of contract an maturity) is to he shared between hem in predetermined proportions. Risk-sharing techniques lam be appropriate when the currency currencies) involved in’ business deals are subject to ah change rate of change who bears a higher loss will pend on the bargaining positions of the two parties.
The use of such :l technique is feasible for large MNCs having large financial resource-s and a large chain of s~hsidlarlt’s operating round the world. In case an MNC has a production centre in on country and large sales in some another country, it may find it usefull to have a new subsidiary set up or shift the existing one to a country where there are substantial sales of its produ~lS. As result, there is built-in hedging of foreign exchange risk as the costs and revenues arc then in the same currency.