Coca Cola is a good example of how MNCs use operational techniques and financial instruments for their foreign-exchange exposure management. Because Coca Cola earns about 80 percent of its operating income from foreign operations, foreign-currency changes can have a major impact on reported earning. The company manages its currency exposures on a consolidated basis, which allows it to net exposures from different operations around the world and takes advantage of natural offsets - for example, cases in which Japanese yen receivables offset Japanese yen payables. It also uses financial contracts to further reduce its net exposure to currency fluctuations. Coca Cola enters into currency forward contracts and purchases currency options in several countries, most notably the euro and Japanese yen, to hedge firm sales commitments. It also buys currency options to hedge certain anticipated sales.
Source: J. D. Daniels, L. H. Radebaugh, and D. P. Sullivan, International Business: Environments and Operations, 10th edn, Upper Saddle River, NJ: Prentice Hall, 2004, p. 620.
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