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Discussion: Do Fixed Exchange Rates Increase Corporate Currency Risk in Emerging Markets?

Expected changes in foreign exchange rates should be incorporated in all financial plans of an MNE, including both operating and financial budgets. Hence the arrival of an expected exchange rate change should not be a surprise requiring alteration of existing plans and procedures. Unexpected exchange rate changes are those that could not have been anticipated or built into existing plans. Hence a reevaluation of existing plans and procedures must be considered. One must note that because budgets are built around expected exchange rate changes, the unexpected exchange rate is the deviation from the expected exchange rate, rather than the deviation from the actual exchange rate at the time a budget was prepared.