Management of Exposure to Currency Risk through Hedging
Managerial Guidelines for Minimizing Currency Risk
100
Manage the multiple-currency transactions of the firm and the exposure to risk created by exchange rate fluctuations.
What is currency risk mangement.
100
U.S. dollars held in banks outside the United States, including foreign branches of U.S. banks.
What are Eurodollars.
100
The current assests of a company.
What is working capital.
100
Using financial instruments and other measures to reduce or eliminate exposure to currency risk.
What is hedging.
100
Management should get expert help from banks and consultants to establish programs and strategies that minimize risk.
What is seek expert advice.
200
Acquire equity, debt, or intracorporate financing for funding value-adding activities.
What is raise funds for the firm.
200
The international marketplace in which bonds are bought and sold, primarily through banks and stockbrokers.
What is the global bond market.
200
A loan between the parent and its subsidiary, channeled through a large bank or other financial intermediary.
What is a fronting loan.
200
A financial instrument to buy or sell a currency at an agreed-upon exchange rate at the initiation of the contract for future delivery and settlement.
What is a forward contract.
200
While some currency management activities may be delegated to local managers, company headquarters should set basic guidelines for the subsidiaries to follow.
What is centralize currency management within the MNE.
300
Determine the ideal long-term mix of debt versus equity financing for the firm's international operations.
What is decide on the capital structure.
300
Any currency deposited in a bank outside its country of origin.
What is a Eurocurency.
300
A country hospitable to business and inward investment because of its low corporate income taxes.
What is a tax haven.
300
A contract that gives the purchaser the right, but not the obligation, to buy a certain amount of foreign currency at a set exchange rate within a specified amount of time.
What is a currency option.
300
Exchange rates fluctuate constantly.
What is monitor changes in key currencies.
400
Assess the financial attractiveness of major investment projects.
What is capital budgeting.
400
A debt instrument that enables the issuer (borrower) to raise capital by promising to repay the principal along with interest on a specified date (maturity).
What is a bond.
400
Prices that subsidiaries and affiliates charge one another as they transfer goods and services within the same MNE.
What is transfer pricing.
400
An agreement to buy or sell a currency in exchange for another at a prespecified price and on a prespecified date.
What is a futures contract.
400
Exchange rate shifts usually follow evolving trends such as rising interest rates, inflation, labor unrest, and the coming to power of new governments.
What is monitor long-term economic and regulatory trends.
500
Learn to operate in a global environment with diverse accounting practices and international tax regimes.
What is manage the diversity of international accounting and tax practices.
500
A bond sold outside the issuer's country and denominated in the currency of the country in which it is issued.
What is a foreign bond.
500
The strategic reduction of cash transfers within the MNE family through the elimination of offsetting cash flows.
What is multilateral netting.
500
An agreement to exchange one currency for another, according to a specified schedule.
What is a currency swap.
500
A flexible production and outsourcing strategy means the firm can shift production and outsourcing to various nations.
What is emphasize flexibility in international operations.