Sharing Risk

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.

Shifting the Manufacturing Base 

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.

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