Question

Which of the following is a reason why budgets in multinational companies are not used to evaluate the firm's performance relative to its budgets? 0 A. 0 B. Evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other volatility. Evaluations based on relative regional performance are considered more meaningful as compared to evaluations against budgets. ° C. Evaluations based on budgets are harder when managers use sophisticated techniques to minimize foreign currency exposure. D. Evaluations based on budgets are not possible because of cultural differences in the budgeting approach.

Answer 1

Answer :

A. Evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other volatility.

Budgeting is a precious tools for any companies to make evaluations but for multinational companies they cannot be used with certainity since each nation has their own rules and regulations, and political, legal, economical and cultural environment.

The mangement team has to prepare budgets in different currencies and have to consider different foreign exchange rates and policies apart from other existing differences. This makes it difficult to prepare budgets and analyse.
Hence , a unique budget for the multinational company prepared cannot be used for evaluation of its performance with certainity. Different budgets for different nations in which the MNC organize should be prepared seperately.