ch11 - Multinational Financial Management Alan Shapiro 9th...

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1 Multinational Financial Management Alan Shapiro 9 th Edition Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton
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CHAPTER 11 Measuring and Managing Economic Exposure
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3 FOREIGN EXCHANGE RISK AND ECONOMIC EXPOSURE I. FOREIGN EXCHANGE RISK A. Economic exposure focuses on the impact of currency fluctuations on firm’s value 1 . The most important aspect of foreign exchange risk management: Incorporate expectations about the Incorporate expectations about the risk into all basic decisions of the risk into all basic decisions of the firm firm
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4 FOREIGN EXCHANGE RISK AND ECONOMIC EXPOSURE 2. Definition: Economic exposure =Transaction exposure +Operating exposure Operating exposure: arises because currency fluctuations alter a company’s future revenues and expenses
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5 FOREIGN EXCHANGE RISK AND ECONOMIC EXPOSURE To measure operating exposure requires a longer- term perspective. i.e. Cost and price competitiveness could be affected by exchange rate changes
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6 FOREIGN EXCHANGE RISK AND ECONOMIC EXPOSURE Operating Exposure begins: the moment a firm starts to invest in a market subject to foreign competition or in sourcing goods or inputs abroad
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7 FOREIGN EXCHANGE RISK AND ECONOMIC EXPOSURE The new investment includes: New product development A distribution network Brand name development Marketing Foreign supply contracts Production facilities
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ch11 - Multinational Financial Management Alan Shapiro 9th...

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