Alliance Design Concepts: Foreign Exchange Risk
Impact that fluctuations in exchange rate to convert CAD to USD could have on profitability?
Need a strategy to deal with exchange rate risk
Last Price Last Price Last Price Last Price Last Price Last Price Last Price
0.0836 0.12833 0.027864
0.2341 0.072099 0.01254
12/31/2015 0.08501 0.12902 0.027755
Balance of Payments and International Economic Linkages:
Balance of Payments is a statistical compilation of all economic transactions
between domestic country and all other nations for a given period of time (one
Balance of Pay
Determination of Exchange Rates:
o Devaluation: Decrease in the stated par value of a pegged currency. (Value
is set by the government)
o Revaluation: Increase in the stated par value of a pegged currency. (Value
is set by
1.1 Historically, the primary motive for U.S. multinationals to produce abroad has been to
a) lower costs
b) respond more quickly to the marketplace
c) avoid trade barriers
d) gain tax benefits
Exchange rates: why and how do they change?
In tandem with other economic variables?
Independently of other monetary variables?
Basics of an exchange rate
What changes in exchange rate conform to other variables?
What changes are difficult to m
Session 3: Chapter 3 and 6
Chapter 3: BOP
BOP helps to keep track of the international economic transactions of a country. to
recognize whether the external sector of an economy is in balance or not.
Those pertaining to the exchang
Session 1: International Finance
Challenges of finance:
Same for International Finance with more complexities
The most important is the exchange rates: each economy has its own exchange rate
Chapter 8: Introduction to exchange risks
Management: Is there value in managing those risks?
Bear the risk
Derivative: transfer the risk to someone else (have to pay a price for not
Chapter 9 up to 288: Foreign currency derivatives
The derivatives are offer through 2 channels:
Organized exchange: (Chicago Mercantile) are institutions that have been
created with the objective of offering derivative products
Over the count
SUGGESTED SOLUTIONS TO CHAPTER 15 PROBLEMS
During the year the price of British gilts (government bonds) went from 102 to 106, while paying a
coupon of 9. At the same time, the exchange rate went from 1:$1.76 to 1:$1.62. What was the
total dollar retur