Question

*1) 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?*

A) Evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other volatility.
B) Evaluations based on budgets are not possible because of cultural differences in the budgeting approach.
C) Evaluations based on relative regional performance are considered more meaningful as compared to evaluations against budgets.
D) Evaluations based on budgets are harder when managers use sophisticated techniques to minimize foreign currency exposure.
Objective 6.7

Answer 1

Budgets in multinational companies are not used to evaluate performance due to exchange rate risk and volatility, as well as managers using sophisticated techniques to minimize foreign currency exposure. Evaluations based on relative regional performance are considered more meaningful.

Step-by-step explanation:

The reason why budgets in multinational companies are not used to evaluate the firm's performance relative to its budgets is because evaluations based on budgets can be meaningless due to factors such as exchange rate risk and other volatility. Exchange rate fluctuations can significantly impact a company's financials, making it difficult to accurately assess performance against budgeted targets.

Furthermore, managers in multinational companies may use sophisticated techniques to minimize foreign currency exposure. This can make evaluations based on budgets harder since the actual financial results may be influenced by these techniques.

Instead, evaluations based on relative regional performance are considered more meaningful. Comparing performance against other companies within the same region provides a better understanding of how a multinational company is performing in the context of its market.