Management of Forex Risk必看课件资料.ppt

Essential Reading The Whole Chapter 8 The Whole Chapter 9 The Whole Chapter 10 Three Types of Exposure Economic Exposure The value of the firm would be affected by unanticipated changes in exchange rates. Transaction Exposure The transactions already entered into, but the value of the contract will be effected as a result of exchange rate changes. Translation Exposure Exchange rate risk as applied to the firm’s consolidated financial statements. Transaction Exposure Transaction risk is the risk that transactions already entered into, or for which the firm is likely to have a commitment in a foreign currency, will have a variable value in the home currency because of exchange rate movements. Clearly, transaction risk is a cash flow risk. It may be associated with trading flows. Transaction Exposure MNCs can usually anticipate foreign cash flows for an upcoming short-term period with reasonable accuracy. One foreign subsidiary may have inflows of a foreign currency while another has outflows of the same currency. In this case, the MNC’s net cash flows of that currency may be negligible; If most of the subsidiaries have future inflows in another currency, the net cash flow may be substantial. Transaction Risk For example, if Miami expects inflow of C$12,000,000 and outflow of C$2,000,000 over the next quarter, the net cash flow is C$10,000,000. Given an expected exchange rate of $0.80 at the end of the quarter, it can convert the expected net inflow of C$ into an expected net inflow of $8,000,000. MNCs could assess their transaction risk during several periods by applying this method. Transaction Risk Hedge Transaction risk hedge Internal techniques External techniques Internal Technique There is a wide range of methods available to minimize foreign exchange risk. Internal methods use tools of risk management which are part of a firm’s own financial management within the group concerned and do not resort to special contractual relationship with other par