Nobody downloaded yet

Identify the main sources of foreign currency risk confronting an international firm and evaluate different techniques that you think may be most appropriate i - Essay Example

Comments (0) Cite this document
Summary
A thorough knowledge of international risk exposures and the relevant techniques for avoiding them is very important for multinational firms. International Currency risk is one of the risks most international firms face in connection with foreign exchange rates.1The problem arises when future payments or remunerations payable in a foreign currency depreciate in value before the foreign currency payment is received and is exchanged into the local currency of the firm…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95% of users find it useful
Identify the main sources of foreign currency risk confronting an international firm and evaluate different techniques that you think may be most appropriate i
Read TextPreview

Extract of sample "Identify the main sources of foreign currency risk confronting an international firm and evaluate different techniques that you think may be most appropriate i"

Download file to see previous pages It can be seen that due to the volatile and unpredictable nature of the forex markets during times of political or economic crisis both these markets carry a considerable risk for the multinational firms. The preceding discussion will assess the types of strategies which can be used to avoid these risks and their feasibility in the short and long term.
This involves the transfer of the transaction exposure to another company through the technique asking them to pay for a product in your currency so that they have to bear the transaction exposure resulting from forex uncertainty on their own. Another technique would be to price the export in the local currency of the other firm and demand payment immediately in which case the current spot rate will determine the value in your own currency of the export.4
A second way of minimising transaction risk is "netting out", and this technique is very helpful for foreign multinationals with large business concerns who do frequent and sizeable amounts of foreign currency transactions. In this way unexpected exchange rate charges will essentially "net out" over many different transactions. This is mainly because when payments and receipts are in many different currencies as this will spread the risks and there might even be a chance of profit.. Although transaction exposure cannot be completely netted away ,the company is better off making a small in one area of trade that a large loss overall if it literally "puts all its eggs in one basket". Compared to hedging this may even be a safer way of avoiding forex risks.
Hedging strategies (aimed at reducing short-term transaction exposures of roughly less than a year.5)
Forward Contracts
This is probably one of the most direct methods of handling hedging risks. The obvious advantage of this is to prevent the company from suffering any loss through a depreciating or appreciating currency because the payment has already been made to a bank. The problem however is that small businesses are often discouraged by banks in this option because of the increased risk that the banks in collecting back the money
Futures contracts
Another option of hedging transaction exposure is with futures market hedge which is a lot similar to the above method .The difference begins when a short sale of a future contract puts the business in a position opposed to that of a business owning the futures contract. This happens because an increase in the value of the contract causes a loss to the company. 6When the futures contract decreases in value, it gains that amount. Another problem is that any losses in ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Identify the main sources of foreign currency risk confronting an Essay”, n.d.)
Identify the main sources of foreign currency risk confronting an Essay. Retrieved from https://studentshare.org/miscellaneous/1525992-identify-the-main-sources-of-foreign-currency-risk-confronting-an-international-firm-and-evaluate-different-techniques-that-you-think-may-be-most-appropriate-i
(Identify the Main Sources of Foreign Currency Risk Confronting an Essay)
Identify the Main Sources of Foreign Currency Risk Confronting an Essay. https://studentshare.org/miscellaneous/1525992-identify-the-main-sources-of-foreign-currency-risk-confronting-an-international-firm-and-evaluate-different-techniques-that-you-think-may-be-most-appropriate-i.
“Identify the Main Sources of Foreign Currency Risk Confronting an Essay”, n.d. https://studentshare.org/miscellaneous/1525992-identify-the-main-sources-of-foreign-currency-risk-confronting-an-international-firm-and-evaluate-different-techniques-that-you-think-may-be-most-appropriate-i.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Identify the main sources of foreign currency risk confronting an international firm and evaluate different techniques that you think may be most appropriate i

The most appropriate organizational culture

...The Most Appropriate Organizational Culture While before, general knowledge is usually taught in order that can qualify into whatever job becomes available regardless of the field of study pursued, in this modern era they are encouraged to enrich their talent, thus the rise of academic courses designed specifically to meet their needs. I belong to the group that started giving due regard to their particular interest at an early age. In addition, there is the drive to heighten the level of competence and get ahead of the others. The mindset is “what I can offer the company that I will choose to work with”, and not the other way around. For this reason,...
1 Pages(250 words)Article

International Currency

...that appreciation of the yen in the 1980s provided some impetus for Japanese firms to increase their direct investments in the United States, because the appreciated yen lowered the price of certain firm-specific assets, such as technology and managerial skills, but that it did not necessarily improve the nominal returns to Japanese firms.11 Actual and expected changes in the exchange rate of the dollar may well influence the timing and the magnitude of foreign investors' decisions, but little research has been done on this issue. Policies for the United States For US companies and government leaders, economic common sense is surely the wisest course....
20 Pages(5000 words)Essay

Currency Overlay Techniques and Perspectives

...Running head: CURRENCY OVERLAY AND INTERNATIONAL DIVERSIFICATION Currency Overlay Techniques and Perspectives on International Portfolio Diversification Student Name School Name Abstract For the past several decades, a well-constructed portfolio management model has included as part of its risk reduction methodology the designation of a significant percentage of the portfolio holdings to be in foreign equities, specifically those from Europe, Asia, and the Far East. Likewise, sophisticated currency hedging methods have been developed as another portfolio protection device. One set of three articles by...
7 Pages(1750 words)Essay

I Think, Therefore I Kant

...actions. As Kemerling (2006) says, "Rationalism offers a naturalistic alternative to appeals to religious accounts of human nature and conduct". However, Kant remained sympathetic to empiricism and suggested the duality of reason and knowledge as two separate and valid spheres of endeavor. Kant also criticized the Utilitarian theories that evaluate the action based on the happiness it produced. According to Utilitarianism, whatever produces the most happiness in the most people is the moral course of action. This could lead to the happiness of many at the expense of a few peoples misery. Kants objection to this thinking was that it devalued the individual and could not...
4 Pages(1000 words)Essay

Foreign Exchange Currency Markets

...Foreign Exchange Currency Markets In the simplest of terms, the gold standard is a defunct monetary system in which paper notes or currency itself was freely convertible to a fixed quantity of gold. While it was used by almost every nation in the world a few decades ago, the gold standard has been abandoned by all nations as foreign exchange currency markets have replaced the idea of currency being traded for gold. Historically speaking, gold has been important as a metal and as a currency for thousands of years. However, it was only in the last century that an international gold standard was...
5 Pages(1250 words)Essay

Foreign Currency Transactions

...Foreign Currency Transactions PART UNIT 2 Determine the eliminating entries necessary for the 20X9 consoli d financial ments Eliminating entries, august 18, 20X9; E (1) outstanding bonds 1,000,000 Adam Corp share 80% *1,000,000 = 800, 0000 Eliminating Adam Corp 200,000 At times, work paper adjustments to accounting data may be needed before appropriate eliminating entries can be accomplished (Copeland, 2008). The need for adjustments generally arises because of in-transit items where only one of the affiliates has recorded the effect of an intercompany transaction. E (2) inters accrual Interest... in the worldwide monetary system. These...
2 Pages(500 words)Coursework

Foreign Currency Exposures of Medco

...exchange where changes in relative value of different currencies are linked with transaction (Fabozzi, Gupta, and Markowit, 2002). Both the parties are usually in hope that exchange rate between the currency of both parties i.e. buyer and seller, remain relatively same until the contract is completely settled. If there is stability among exchange rates, then both, buyer and seller reap what they expected to gain from the contract. However, if there is significant shift in exchange rate, then one party incurs losses while the other stands to gain substantially. Translation Risk Every company constructs balance sheet and income statement. Balance sheet includes the...
8 Pages(2000 words)Essay

Identify time management techniques

...Time Management Techniques al Affiliation Time Management Techniques Based on the results of the Time Management and Goals Setting skills tests, the overall score was 50; which is indicative of one’s ability to manage time very effectively. As disclosed, despite the high score, one needs to focus on efforts and techniques which would assist in developing goal setting skills. One’s score under goal setting is 13 out of 20 or 65%. The proposed techniques included explicitly writing and accurately detailing the goals that need to be accomplished. Likewise, there are more positive ways of stating how goals should be set to provide a more optimistic stance at earmarking for...
2 Pages(500 words)Essay

Five different sources of risk capital financing

...FINANCE AND ACCOUNTING Introduction Ordinarily, inventive and growth-oriented small businesses often need to raise capital or equity from external sources. This is because of the lack of their own resources to raise funds and they cannot access loans. However, many investors are reluctant to invest in start-ups and innovative firms because of the high risks and transaction costs. They also tend to tarry to offer loans to this start ups businesses because they estimate that the expected returns will not compensate for the risk. (Mark, 2013).This paper tends to exploit the sources of risk financing and the activities that are...
6 Pages(1500 words)Research Paper

Foreign Currency Matters

...Foreign Currency Matters Question & Answer 1. Wilkins was correct in his statement that in that in a hyperinflation environment, the local currency is not stable enough to serve as a functional currency. Losses occur if such a currency is used. This means that the more stable currency of the reporting parent company will be used. Hirauye’s statement was, therefore, incorrect (Earnest & Young, 2014). 2. In a situation where Singapore Dollar is the subsidiary’s functional currency for Molsan Industries’ Japanese Subsidiary, it means that books will be kept in the functional currency. On reporting the same to the parent company, the currency and hence books will be remeasured to Canadian Dollar based on the current exchange rates... . On the...
2 Pages(500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Identify the main sources of foreign currency risk confronting an international firm and evaluate different techniques that you think may be most appropriate i for FREE!

Contact Us