536-4a_note, 11S FIN 536 – SU Page 1 of 16 Topic 4 Managing Transaction Exposure (Chapter 11) I.Outline A.Identify Transaction Exposure B.Measure Transaction Exposure C.Manage Transaction Exposure II.Homework Assignment Chapter11End-of-Chapter Question2End-of-Chapter Problem (P)14Exam Sample Problem (ES) 1-11 Supplementary Homework Problem (SH)1-5========================================================= Class Notes I.Introduction A.Types of Foreign Exchange Exposure (Ex. 11.1) B.The value of hedging (Ex. 11.2) 1.Reduces risk 2.Do not add value C.To hedge or not to hedge? Opponents for currency hedging Proponents for currency hedging No added value Planning capability Shareholder to diversify risk Financial distress Agency problem, window dressing Insider information Market equilibrium Market disequilibrium Efficient market Inefficient market
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