Companies face both long term and short term currency

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: stment The transfer of capital, managerial, and technical assets to a foreign country. Companies face both long-term and short-term currency risks related to both the invested capital and the cash flows resulting from it. Long-term currency risk can be minimized by financing the foreign investment at least partly in the local capital markets rather than with dollar-denominated capital from the parent company. This step ensures that the project’s revenues, operating costs, and financing costs will be in the local currency. Likewise, the dollar value of shortterm, local-currency cash flows can be protected by using special securities and strategies such as futures, forwards, and options market instruments. Political risks can be minimized by using both operating and financial strategies. For example, by structuring the investment as a joint venture and selecting a well-connected local partner, the U.S. company can minimize the risk of its operations being seized or harassed. Companies also can protect themselves from having their investment returns blocked by local gov...
View Full Document

This document was uploaded on 01/19/2014.

Ask a homework question - tutors are online