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ITF (Lecture 9) Foreign exchange risk management, financial instruments, 3…
ITF (Lecture 9) Foreign exchange risk management
Foreign exchange exposures
Exhibit 10.1 - Foreign exchange exposures of the firm
Types of foreign exchange exposure
Why Hedge?
Exhibit 10.2 - Hedging's impact on the expected F of the firm
Measurement of transaction exposure
Exhibit 10.3 - The life span of transaction exposure
Ganado's transaction exposure
Exhibit 10.4 - Ganado's transaction exposure
Forward hedge
Money market hedge
Options market hedge
The essence of put option hedge
Comparison of alternatives
Risk management in practice
financial instruments
forward market
money market
options market
3 rates can be used for conversion
closing rate
historical rate
average rate
slide 2
learning outcome
How to manage the 3 types of exposures
transaction exposure
economic exposure
translation exposure
The various types of hedging techniques
internal hedging techniques
market-based hedging techniques
Some factors would take into account when choosing hedging technique
3 major foreign exchange exposures faced by multinational firms