Foreign Exchange Risk Management
This document was uploaded by user and they confirmed that they have the permission to share it. If you are author or own the copyright of this book, please report to us by using this DMCA report form. Report DMCA
Overview
Download & View Foreign Exchange Risk Management as PDF for free.
More details
- Words: 273
- Pages: 7
Foreign exchange risk management
11/21/09
Risk management - Kevin
Foreign exchange risk: meaning
Value of a currency changes frequently Affects firms engaged in international transactions Assets, liabilities and cash flows are affected through changes in exchange rates Possibility of unfavourable changes Risk
11/21/09
Risk management - Kevin
Types of risk/ exposure
Accounting/ translation exposure: financial statements Economic exposure: cash flows
11/21/09
Transaction exposure: present cash flows Real operating exposure: future cash flows
Risk management - Kevin
Translation exposure
Occurs on consolidation of financial statements of different units of MNCs When the value of currency of a subsidiary changes, its translated value in the domestic currency of the parent company changes This change represents translation exposure It is only an accounting exposure
11/21/09
Risk management - Kevin
Transaction exposure
Impact of exchange rate fluctuations on present cash flows From transactions already entered into
11/21/09
Export and imort Borrowing and lending in foreign currency Intra firm fund flow in an international company
Risk management - Kevin
Real operating exposure
Changes in exchange rates alter future operating revenues and cost streams of a company Changes in future cash flows from changes in exchange rates - real operating exposure
11/21/09
Risk management - Kevin
Foreign exchange risk: techniques of management
Transaction risk (short term):
Real operating risk (long term):
Hedging using currency forwards or futures Adaptation in production and marketing strategy (plant location, input mixing, input sourcing, market selection, product planning, pricing, etc )
Translation risk: accounting risk
11/21/09
Risk management - Kevin
11/21/09
Risk management - Kevin
Foreign exchange risk: meaning
Value of a currency changes frequently Affects firms engaged in international transactions Assets, liabilities and cash flows are affected through changes in exchange rates Possibility of unfavourable changes Risk
11/21/09
Risk management - Kevin
Types of risk/ exposure
Accounting/ translation exposure: financial statements Economic exposure: cash flows
11/21/09
Transaction exposure: present cash flows Real operating exposure: future cash flows
Risk management - Kevin
Translation exposure
Occurs on consolidation of financial statements of different units of MNCs When the value of currency of a subsidiary changes, its translated value in the domestic currency of the parent company changes This change represents translation exposure It is only an accounting exposure
11/21/09
Risk management - Kevin
Transaction exposure
Impact of exchange rate fluctuations on present cash flows From transactions already entered into
11/21/09
Export and imort Borrowing and lending in foreign currency Intra firm fund flow in an international company
Risk management - Kevin
Real operating exposure
Changes in exchange rates alter future operating revenues and cost streams of a company Changes in future cash flows from changes in exchange rates - real operating exposure
11/21/09
Risk management - Kevin
Foreign exchange risk: techniques of management
Transaction risk (short term):
Real operating risk (long term):
Hedging using currency forwards or futures Adaptation in production and marketing strategy (plant location, input mixing, input sourcing, market selection, product planning, pricing, etc )
Translation risk: accounting risk
11/21/09
Risk management - Kevin
Related Documents
Foreign Exchange Risk Management
June 2020 12
Foreign Exchange Risk
June 2020 13
Lecture 4 Foreign Exchange Risk Management
May 2020 3
Foreign Exchange Risk And Exposure
April 2020 11
2 - Foreign Exchange Management Act
May 2020 15