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1、Chapter19ForeigncurrencyriskChapteroverviewForeignExchangeRisksEconomicTranslationTransactionriskriskriskDifficulttoavoid,Notcashflow,onlyNeedHedgediversificationmayAccountingissues,reducetheriskNohedgeneededInternalExternalMethodsMethodsSlide2ChapterGuide
2、•Describeanddiscussdifferenttypesofforeignexchangerisk:translationrisk,transactionrisk,economicrisk.•Describethecausesofexchangeratefluctuations,including:(i)balanceofpayments(ii)purchasingpowerparitytheory(iii)interestrateparitytheory(iv)four-wayequivalen
3、ceSlide3Slide3ChapterGuide•Forecastexchangeratesusingpurchasingpowerparitytheoryandinterestrateparitytheory.•Discussandapplytraditionalandbasicmethodsofforeigncurrencyriskmanagement,including:currencyofinvoice,nettingandmatching,leading&lagging,forwardexch
4、angecontracts,moneymarkethedging,asset&liabilitymanagement•Compareandevaluatetraditionalmethodsofforeigncurrencyriskmanagement•Identifythemaintypesofforeigncurrencyderivativesusedtohedgeforeigncurrencyriskandexplainhowtheyareusedinhedging.Slide4Slide4Chapt
5、er19.Foreigncurrencyrisk1.TypesofforeignexchangeriskEconomicRiskForeignexchangeriskTransactionTranslationRiskRiskSlide5Chapter19.Foreigncurrencyrisk1.Typesofforeignrisks•TranslationriskRiskthatorganizationwillmakeexchangelossesthenaccountingresultsofitsfor
6、eignbranchesorsubsidiariesaretranslatedintothehomecurrency•EconomicriskThisreferstotheeffectofexchangeratemovementsontheinternationalcompetivenessofacompanyandreferstotheeffectonthepresentvalueoflongertermcashflows.•TransactionriskRiskofadverseexchangerate
7、movementsoccurringinthecourseofnormalinternationaltradingtransactions.Slide6Chapter19.ForeigncurrencyriskLectureexample1During2003,thevalueofthe£increasedby20%againstthe$;from1.5$/£to1.8$/£.Requireda)CalculatetheimpactofthisonaUKexporterduetoreceive$180,00
8、0fromaUScustomerb)CalculatetheimpactofthisonaUKimporterduetopay$180,000toaUSsupplierSlide7Slide7Chapter19.ForeigncurrencyriskAnswertoLectureexample1(a)$180,000/1.5=£120,000expected$180,000/1.8=£100,000receive
