European Institute for Advanced Studies in Management Working Paper
75-37. September 1975. 19 pages.
The present theory of financial decisions of the firm is mainly
concerned with the one-country environment. The growth of the
multinational firms has led to the question whether this theory is
applicable in the multi-country setting as well, or whether
significant modifications would be needed. A summary of recent
research by Nauman-Etienne (1974) points to the fact that many
questions remain essentially unsolved in the various areas of
financial decisions customarily distinguished in the one-country
environment.
The present paper is an attempt to demonstrate in the framework of a
two-stage linear programming model how the optimal policy for the
multinational firms shifts from the traditional hedging into
diversifying of international borrowing sources when forecasts of
the future exchange rates, given in the firm of discrete probability
distributions, shift from an expected devaluation of individual
currencies into a floating pattern.
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