Impact of Exchange Rate on Delocalization Decisions of Multinational Enterprises

In this paper, using real option pricing theory, the production or sales delocalization flexibility for multinational enterprises making decisions is modeled as exchange option under multifactor of uncertainty, such as stochastic exchange rate, labor costs or product price. The paper presents the option valuation of delocalization production or sale abroad and the optimal investment decision rules in that include the optimal threshold value of delocalization production abroad and the optimal threshold value of sale abroad. The paper also discuss that the effect of important parameters on the optimal threshold value of delocalization product or sales. Finally, numerical simulations for the delocalization decision rules are given and show that this delocalization decision rules are operable in application.