Historical Currency Crises
In this 1985 agreement in New York, the G5 nations met secretly and agreed to coordinate actions to deliberately push down an overvalued US Dollar, cutting its value roughly in half against the Japanese Yen.
What is the Plaza Accord?
In September 2017, this Central Asian country unified its split official and parallel black-market exchange rates, freeing the currency and resetting the official rate from 4,210 to 8,100 per dollar.
What is Uzbekistan (the Uzbek Som)?
According to the fundamental formula, currency risk appears when these three elements meet: Exposure × _______ × Volatility.
What is Time?
An exporter with strong bargaining power can eliminate 100% of its currency risk by writing contracts and billing invoices in this specific currency.
What is its own domestic (functional) currency?
This customized over-the-counter (OTC) contract with a bank fixes an exact exchange rate today for a set date in the future with zero upfront fees, but is legally binding.
What is a Forward Contract?
On "Black Wednesday" (September 16, 1992), this famous investor earned roughly $1 billion by shorting the British Pound after the Bank of England failed to defend its ERM peg despite spending $24 billion.
Who is George Soros?
Under this historical monetary system used before WWI, paper currencies had fixed values backed by and directly redeemable for physical bars of precious metal in vault reserves.
What is the Gold Standard?
This type of currency risk involves actual cash flow changes between signing a contract and settling payment on a deal that is already agreed.
What is Transaction Risk?
Structuring operations so that foreign currency sales revenue directly pays foreign suppliers, staff, or debt in that same currency is known as this strategy.
What is Matching (Natural Hedging)?
Unlike a forward contract, this financial derivative gives the buyer the right, but not the duty, to trade currency at a strike rate, keeping upside potential in exchange for an upfront premium.
What is a Currency Option?
During the 1997 Asian Financial Crisis, local firms collapsed primarily because their debt was denominated in this foreign currency while their revenues were in local money
What is the US Dollar (USD)?
Under the 1944 Bretton Woods agreement, major world currencies pegged their exchange rates to the US Dollar, while the US government promised foreign central banks it would convert dollars into gold at this exact price per ounce.
What is $35 per ounce?
This long-term risk impacts a company's future sales, costs, operating profit margins, and competitiveness over years ahead.
What is Economic (or Operating) Risk?
When a parent company owes its German subsidiary €3 million and the German unit owes the parent €2 million, they reduce exposure by 80% by transferring only the €1 million difference through this technique.
What is Netting (Multilateral Netting)?
In 1981, this landmark first major cross-currency swap occurred between an American computer company and this international financial institution.
Who are IBM and the World Bank?
On January 15, 2015, the Swiss National Bank surprised markets by dropping this exchange rate floor against the Euro without warning, causing the Franc to jump up to 30%.
What is 1.20 CHF per Euro?
In late 2014, when global crude oil prices crashed by half, this oil-exporting nation saw its currency tumble from around 33 to roughly 80 per US Dollar.
What is Russia (the Russian Rouble)?
This non-cash, paper-based currency risk occurs when converting the value of a foreign subsidiary's balance sheet into the parent company’s reporting accounts on reporting dates.
What is Translation Risk?
If an importer in Tashkent owes $200k in 60 days and expects the som to weaken, choosing to pay the bill today instead of waiting is an example of this timing tactic.
What is Leading?
In markets where forward contracts do not exist, a company can synthetically lock in the exact same cost by taking out a domestic loan and placing a foreign deposit, known as this hedge
What is a Money Market Hedge?
On June 24, 2016, following the surprise Brexit referendum result, the British Pound dropped by roughly this percentage in a single day to reach its weakest level since 1985
What is ~9% to 10%?
Because currencies are no longer tied to gold, global capital chases higher deposit yields; between 2022 and 2024, wide interest rate gaps between the US (5.5%) and Japan (-0.1%) caused the Japanese Yen to fall to this level per dollar.
Answer: What is 161.9 (or ~162) Yen per Dollar?
For a UK company with €10 million due in 9 months and an annual volatility of 8%, this is the approximate typical currency swing (in British Pounds) expected before payment date.
What is £0.55 million (or £550,000)?
European aircraft manufacturer Airbus naturally hedges approximately this percentage of its US Dollar revenues by purchasing parts and jet engines in US Dollars.
What is ~60%?
If a UK importer buys a €10 million machine due in 9 months and locks it in using a forward contract at €1.2318/£, this is the exact total cost in British Pounds they are guaranteed to pay
What is £8.12 million?