1)Hedging tools are what you use to avoid or limit potential losses on foreign currency exchange. They are rather varied and you need to consider every option carefully to choose what will work best for your business strategy.

The best hedging tools for multinational companies to use are:

• Forwards.
  In essence, forward contracts allow you to purchase the obligation to exchange currency at some point in the future at a rate fixed now. However, as it’s an obligation, you must make the exchange within the set time frame.
• Options.
  Unlike forward contracts, options give you the right to exchange currency at a fixed rate. This means that you choose whether to use it or not.
• Swaps.
  Swaps are when the buyer and seller of currency, essentially, swap amounts use them for the designated time and swap back at a predetermined rate.
• Futures.
  Futures are similar to forwards but more flexible because you can offset currency depreciation by trading them.   

Lags strategy:- Lags in international business most commonly refers to the alteration of normal payment or receipts in a foreign exchangetransaction based on an expected change in exchange rates. When a corporation or government entity has the ability to control the schedule of payments being received or being made, then that organization may opt to pay earlier than scheduled or delay the payment later than scheduled. These changes would be made in anticipation of capturing the benefit from a change in currency exchange rates. These dynamics hold true both for small and large transactions.

2)

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Question:

Answer:

Forward contract is a tool of managing or hedging the currency risk. Forward contracts are b a private and customizable agreements between two parties to exchange two designated currencies at a specific time in the future at prespecified rate. An MNE operate in the different countries and so, foreign exchange risk is vital for the MNE. Normally when a MNE work in the international market then its deal or invest in foreign currency and earn their profit in the foreign or local currency. But when the MNE transfer its profits or principle or other income or capital into their home country the exchange rate play import role and widely affect the profits or value of the fund that transfer to the home country. Other side its also affect the value of their import and export. When a MNE export or import then the amount that its receive from importer or the amount they pay to the exporter widely affected by the exchange rate.

A Forward Contract may be beneficial for business and individuals if exchange rates are attractive now, and you want to lock in that rate to hedge against uncertainty in the future. This is also helpful for small businesses who want to keep their cash flows predictable when buying or selling overseas. Suppose a US based MNE doing business in the EU and expecting the Euro will get depreciated against USD then it can harm to the cash flow or profits or income of the MNE because the value of the income that have earned in the Euro in the Europe will have less value in the USD. So, here the US based MNE will inter into the forward contract to hedge against uncertainty in the future. But if the US based MNE think that USD will depreciate against the Euro in the future then there is no need of a forward contract to hedge against uncertainty in the future.beacuse the value of the income that have earned in the Euro in the Europe will have more value in the USD. So, currency hedging is vital when there are foreign exchange risks in the future otherwise its not needed.