ch11(1) - 11-1Butler Multinational FinanceChapter 11...

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Unformatted text preview: 11-1Butler / Multinational FinanceChapter 11 Managing Operating Exposure to Currency RiskChapter 11Chapter 11Managing Operating ExposureManaging Operating Exposureto Currency Riskto Currency RiskLearning objectivesOperating exposure to currency risk–Exposure of real assets–Exposure of shareholders’ equityManaging operating exposure–Internal hedges–Financial market (external) hedgesOperating exposure to currency risk and the firm’s pricing strategyButler / Multinational FinanceChapter 11 Managing Operating Exposure to Currency Risk11-2Butler / Multinational FinanceChapter 11 Managing Operating Exposure to Currency RiskExposures to currency riskEconomic exposure to currency risk-Transaction exposure of monetary (contractual) assets and liabilities-Operating exposure of real assetsEquity exposure to currency risk-Net monetary assets exposed to currency riskplus the operating exposure of real assets✓Operating exposure to currency riskManaging operating exposureOperating exposure and the firm’s pricing strategyTypes of exposure ✓Operating exposure to currency riskThe exposure of shareholders’ equityMeasuring exposure to currency risk11-3Butler / Multinational FinanceChapter 11 Managing Operating Exposure to Currency RiskThe law of one price revisitedIn an integratedmarket-purchasing power parity holds so that equivalent assets trade for the same price regardless of where they are tradedIn a completely segmentedmarket-prices are determined in the segmented, local marketReal-world markets fall somewhere between these extremesTypes of exposure ✓Operating exposure to currency riskThe exposure of shareholders’ equityMeasuring exposure to currency risk✓Operating exposure to currency riskManaging operating exposureOperating exposure and the firm’s pricing strategy11-4Butler / Multinational FinanceChapter 11 Managing Operating Exposure to Currency RiskDomestic firmsImportersExportersGlobal MNCs &importers/exportersin competitive global markets(?)RevenuesOperatingexpensesLocalGlobalLocalGlobal(0)(-)(+)Operating exposures to fx risk (in parentheses)Types of exposureOperating exposure to currency risk ✓The exposure of shareholders’ equityMeasuring exposure to currency risk✓Operating exposure to currency riskManaging operating exposureOperating exposure and the firm’s pricing strategy11-5Butler / Multinational FinanceChapter 11 Managing Operating Exposure to Currency RiskReal assets exposed to FX riskNet exposed monetary assetsForeign currencymonetary assetsDomestic currencymonetary assetsReal assetsForeign currencymonetary liabilitiesDomestic currencymonetary liabilitiesEquity(40¢)(20¢)(25¢)(40¢)(35¢)(40¢)(35¢)(20¢)A common size balance sheetThe exposure of shareholders’ equityTypes of exposureOperating exposure to currency riskThe exposure of shareholders’ equity ✓Measuring exposure to currency risk✓Operating exposure to currency riskManaging operating exposureOperating exposure and the firm’s pricing strategy11-6...
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This note was uploaded on 10/25/2011 for the course FINS 5516 taught by Professor A during the Three '10 term at University of New South Wales.

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ch11(1) - 11-1Butler Multinational FinanceChapter 11...

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