《国际金融管理International Financial Management》双语课件-10 Managing Economic Exposure.ppt

Managing Economic Exposure Chapter Objectives To explain how an MNC’s economic exposure can be hedged. Economic Exposure Economic exposure refers to the impact of exchange rate fluctuations that can have on a firm’s future cash flows. Recall that corporate cash flows can be affected by exchange rate movements in ways not directly associated with foreign transactions. Economic Exposure Exchange rate changes are often linked to variability in real growth, inflation, interest rates, governmental actions,… If material, the changes may cause firms to adjust their financing and operating strategies. The importance of managing economic exposure can be seen from the case of the bankruptcy of Laker Airways, and from the 1997-98 Asian crisis. Case : the bankruptcy of Laker Airways After a six-year battle won in the courts, Freddie Laker obtained a permit for his Laker Airways to operate the Skytrain service on both sides of the Atlantic, using two DC-10 planes. The Skytrain was a no-reservation, low cost air service, which revolutionized the air transport industry. On September 26, 1977, the first Skytrain flight departed London for New York, and subsequently went on to carry over 50,000 passengers before the end of the year with each flight over 80 percent full. The success was such that the Skytrain service was expanded to include a London to Los Angeles service in 1978, London to Miami in 1980 and London to Tampa in 1981. Case : the bankruptcy of Laker Airways During this time of expansion, the USD was weak against the GBP, and U.S. trips were relatively cheap for U.K. residents. Freddie Laker was able to expand the Skytrain concept by buying more DC-10s, financing them in USD. Thus, Skytrains debt payments were in USD, while Skytrains revenues were primarily in GBP. In 1981, the USD started to gain against all European currencies and Lakers expenses increased, while Lakers revenues decreased. In February 1982, Laker Airways was forced to file for bankruptcy. Skytrain