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Managing in The Global Economy

This document discusses foreign exchange risk, which is the financial risk that exists when a transaction is denominated in a currency other than the domestic currency of a company. It presents three types of foreign exchange risk exposures: transaction risk exposure from contractual commitments, translation risk exposure from accounting adjustments, and operating risk exposure from currency fluctuations affecting cash flows. It also covers import/export flows and the market for U.S. dollars as foreign exchange.

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John Carlo Cialana
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29 views

Managing in The Global Economy

This document discusses foreign exchange risk, which is the financial risk that exists when a transaction is denominated in a currency other than the domestic currency of a company. It presents three types of foreign exchange risk exposures: transaction risk exposure from contractual commitments, translation risk exposure from accounting adjustments, and operating risk exposure from currency fluctuations affecting cash flows. It also covers import/export flows and the market for U.S. dollars as foreign exchange.

Uploaded by

John Carlo Cialana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Chapter 6

MANAGING IN
THE GLOBAL
ECONOMY
INTRODUCTION
IMPORT-EXPORT SALES AND
EXCHANGE RATES
Foreign Exchange Risk
• Foreign Exchange Risk (also known as FX risk exchange rate
risk or currency risk)
• Is a financial risk that exist when a financial transactions is
denominated in a currency other than the domestic currency of
the company.
• The exchange risk arises when there is a risk of significant
appreciation of the domestic currency in relation to the
denominated currency before the date when the transaction is
completed.
Three types of Foreign
Exchange Risk Exposures
Transaction Risk Exposure

• A change in cash flows resulting from


contractual commitments to pay in or receive
foreign currency.
Translation Risk Exposure

• An accounting adjustment in the home


currency value of foreign assets or liabilities.
• occurs when a company’s foreign assets (or
liabilities) are affected by persistent exchange
rate trends.
Operating Risk Exposure

• A change in cashflows from foreign or domestic


sales resulting from currency fluctuations.

• are more difficult to hedge than transaction risk


exposures and more difficult to forecast than
translation risk exposures. As a result, operating risk
exposures necessitate more managerial attention and
extensive analysis.
OUTSOURCING
CHINA TRADE
BLOSSOMS
THE MARKET FOR
U.S. DOLLARS AS
FOREIGN EXCHANGE
• Import/Export Flows and Transaction Demand for a
Currency
• The Equilibrium Price of the U.S. Dollar
• Speculative Demand, Government Transfers, and
Coordinated Intervention
• Short-Term Exchange Rate Fluctuations
DETERMINANTS OF
LONG-RUN TRENDS
IN EXCHANGE RATES
• The Role of Real Growth Rates

• The Role of Real Interest Rates

• The Role of Expected Inflation


PURCHASING POWER
PARITY
PPP Offers a Better Yardstick of Comparative Growth
Relative Purchasing Power Parity
INTERNATIONAL TRADE:
A MANAGERIAL
PERSPECTIVE
FREE TRADE AREAS:
THE EUROPEAN UNION
AND NAFTA
LARGEST U.S. TRADING
PARTNERS: THE ROLE
OF NAFTA
PERSPECTIVES ON THE
U.S. TRADE DEFICIT

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