How are companies ming Currency Cash Flows? O offset an anticipated continuous long exposure to a particular company is to acquire debt denominated in that currency (match O to seek out potential suppliers of raw materials or components in a foreign country as a substitute for U.S. O engage in currency switching O All of the above
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- Match each term in Column A with its related definition in Column B. Column A 1. ____________ Spot rate 2. ____________ Currency appreciation 3. ____________ Translation risk 4. ____________ Transaction risk 5. ____________ Exchange rate Column B a. The rate at which one currency can be traded for another currency. b. The possibility that future cash transactions will be affected by changing exchange rates. c. A month ago, 1 U.S. was worth 8.5 Mexican pesos. Today, 1 is worth 9.0 Mexican pesos. The U.S. dollar has undergone what? d. The degree to which a firms financial statements are exposed to exchange rate fluctuation. e. The exchange rate of one currency for another for immediate delivery (today).Assume a Japanese company, Ascent Robotics, sells its equipment to a U.S. client invoicing half of the bill in yen and the remaining half in U.S. dollars. Which type of hedging through invoice currency does this situation represent? Shifting exchange exposure Money market hedge Sharing exchange exposure Diversifying exchange exposureAn example of transaction exposure is when Question 4 options: companies have obligations for the purchase of goods at previously agreed prices. companies borrow funds in domestic currency. there is an impact of currency exchange rate changes on the reported financial statements of a company. there is a long-term effect of changes in exchange rates. changing exchange rates persists on future prices, sales, and costs
- d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in dollars. e. Explain to Galina Works how, in respect of foreign sales, discounting and factoring can be used as hedging tools to manage foreign currency risk.Title: Identification Things to do: 1. A second function of the foreign exchange market is to provide exchange possibility that unpredicted changes future exchange rates adverse consequences for the firm. insurance against risk, which is the in will have exchange rate is the rate foreign exchange dealer 2. The at which a converts currency into another one currency on a particular day. 3. The value of a is determined by the interaction between the demand and supply of that currency relative to the demand and supply of other currencies. 4. A parties agree exchange occurs to exchange currency when two and execute the deal at some specific date in the future. 5. rates governing such future transactions are referred to as forward exchange rates. 6. Changes in be problematic for an business. exchange rates can international 7. A is the simultaneous purchase and sale of a given amount of foreign exchange for two different value dates. 8. When a firm enters into a it is taking out possibility…1. Explain the differences and similarities between Forward, Futures, andOptions. Then why can there be a Long Term Funding Deficit related to a company's cash flows? and Explain the meaning of international parity conditions, and why it can be used to predict exchange rates. and what is the meaning of foreign exchange exposure and types of foreign exchange exposure faced by multinational companies.
- Explain the International Fisher effect and Interest Rate Parity theories. If these theories exist, explain MNCs' justification to invest excess cash in foreign country. Present a situation in which investment in the foreign money market would provide a higher rate of return than the one offered at the home market.One of the issues that companies need to address when dealing with foreign currencies is how fluctuations in that currency are handled. What is the dual transaction approach, accrual perspective? How might a company account for exchange rate fluctuations using this approach?Give reasons why multinational corperations expand overseas and how they manage the exchange rate risk
- Question Anticipated cash inflows may fall in value if unexpected movements in the exchange rate hurt your ability to convert the foreign currency into domestic currency. This reduction in the conversion of future payments is called . A. translation exposure B. transaction exposure C. conversion exposure D. operating exposureWhich is the most simple way that is able to protect a U.S firm's earnings of its consolidated income statement in the depreciation of euro relative to U.S. dollar? A. Selling euros forward in the foreign exchange market. B. Partner with the local firm of the oversea market. C. Purchasing euros forward in the foreign exchange market. D. Establish a subsidiary in the oversea economy.The foreign subsidiary of a U.S. firm is profitable when profits are measured in the foreign currency but those profits become losses when measured in U.S. dollars. This is an example of which one of the following? A. Interest rate disparities B. Short-run exposure to exchange rate risk C. Long-run exposure to exchange rate risk D. Political risk associated with the foreign operations E. Translation exposure to exchange rate risk
