A strategy to manage corporate foreign exchange exposures with mutual benefits to multinationals and Asia-Pacific countries

Management of accounting exposure is often at the expense of increased transaction exposure or increased financing cost. Multinational firms want to mitigate both foreign exchange exposures and also reduce financing cost. This paper develops a model to demonstrate the potential for a comprehensive strategy which will mitigate accounting exposure without increasing transaction exposure or financing cost. The model has three main participants: multinational firms (as borrowers and business corporations), Asian-Pacific nations (as host countries), and their National Provident Funds (as lenders). The strategy involves direct local currency borrowing from National Provident Funds for multinational firms' investments in Asian-Pacific countries and the use of local currency sales revenue for servicing the debt. The strategy outlined satisfies the preferences of all the participants involved. The primary purpose of the paper is to provide a conceptual exposition of the potential, under certain conditions.