IGNOU IBO 6 2025 2026 - What factors determine centralization/decentralization of ex

Question

What factors determine centralization/decentralization of exchange risk management? Which policy would you advocate for Indian Multinationals? Why?

24 Oct 2025

Answer :

Word Count : 508

The decision to centralize or decentralize exchange risk management within a multinational enterprise depends on several organizational, operational, and financial factors. Exchange risk, or foreign exchange exposure, arises from fluctuations in currency values that can affect a company’s assets, liabilities, revenues, and costs denominated in foreign currencies. The structure chosen to manage this risk determines how effectively a multinational can safeguard its profitability and cash flows. A key factor influencing centralization is the degree of global integration of the firm’s operations. When a company has highly interdependent subsidiaries with frequent intra-group transactions, centralized exchange risk management is more efficient. A central treasury can monitor the group’s overall exposure, offsetting natural hedges among subsidiaries, and execute bulk hedging

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