Chapter 3╲t The Management of Foreign Exchange Rate Exposure 国际金融专业双语教学课件.pptVIP

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Chapter 3╲t The Management of Foreign Exchange Rate Exposure 国际金融专业双语教学课件.ppt

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Chapter 3 The Management of Foreign Exchange Rate Exposure Foreign exchange exposure is a measure of the potential for a firm’s profitability, net cash flow, and market value to change because of a change in exchange rates. An important task of the financial manager is to measure foreign exchange exposure and to manage it so as to maximize the profitability, net cash flow, and market value of the firm. The effect on a firm when foreign exchange rates change can be measured in several ways. Types of Foreign Exchange Exposure Transaction exposure measures changes in the value of outstanding financial obligations incurred prior to a change in exchange rates but not due to be settled until after the exchange rates change. Thus, this type of exposure deals with changes in cash flows that result from existing contractual obligations. Types of Foreign Exchange Exposure Example: English importer Martin imported the goods worthy of $1,000,000 from USA in March 1st 2006. US dollar is stimulated to settle the payment and the payment date is 2-month later. The rate of $/￡ is 1.6000 in March 1st and 1.5000 in May 1st. According to the rate of 1.6000, Martin only need ￡625,000 to convert into US dollar, but after 2 months, he has to pay ￡666,700 to get the same volume of US dollar. Types of Foreign Exchange Exposure Transaction exposure may appear when In exportation or importation, during the period from signing the contracts to settling the payment, the fluctuation of exchange rate may lead to transaction exposure. In the international loans which are always in terms of forex, when the loans aren’t cleared, rates’ change may arise the transaction exposure. In forward transactions, on the value date, because the forex rate rises or falls, one part has to pay more one currency to convert into the other currency. Accounts payable or receivable in foreign currency may also be influenced by the fluctuation of exchange rate . Types of Foreign Exchange Exposure Operating exp