How have recent changes in exchange rates affected McDonald's?

Expert Answers

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McDonalds has operations worldwide and though they may not be too much into importing and exporting to be affected by the change in exchange rate on that front, the revenues of the company in terms of US dollars are definitely dependent on the exchange rate.

McDonalds operates not by setting up its own outlets but allowing others called franchisees that are licensed by McDonalds to open an outlet with its name and sell its products.

Most ingredients used in manufacturing by the franchises are sourced from the country it is based and sold in the same country. Exchange rate changes would not affect a franchise, but the funds that they pay McDonalds would.

Let's assume the license fee is a fixed component and a percentage of the profits made by the franchise. A franchise based in Japan earns in the local currency. They give McDonalds a part of what they have earned in yen. If the yen were to weaken against the USD, McDonalds would receive a smaller amount in USD, for the same earnings of the franchise.

As the dollar has weakened versus almost all the countries in the World, it implies they are now getting more from their overseas operations than they were when the dollar was stronger.

Approved by eNotes Editorial Team

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