Foreign exchange rate exposure and risk management ppt

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SlideShare Explore Search You. Show related SlideShares at end. Full Name Comment goes here. Are you sure you want to Yes No. GOWRI SREE AGRO PRODUCTS PVT LTD at GOWRI SREE AGRO PRODUCTS PVT LTD.

Foreign exchange exposure PPT

Embeds 0 No embeds. No notes for slide. Foreign exchange exposure 1. MD TAHER AHMED M. There is one view that any talk of Exchange Rate Exposure is irrelevant.

The argument is based on the PPP theory which explains that the movement in ER is matched by the movement in price inflation rate and so, the financial performance of a firm is not affected. The other view suggests that the ER Exposure is very relevant because PPP theory is not applicable in short run.

Even in the long run, there are so many factors other than Inflation Rate Differential, that influence ER. If the ER changes due to some other factors, the resulting exposure will not be matched by the Inflation Rate Differential, and the FEE could really matter. Transaction Exposure means changes in the present cash flow of a firm consequent upon the exchange rate changes.

TE is basically the cash flow risk and deals with the effect of exchange rate moves on Transactional account exposure related to receivables export contracts , payables import contracts , or repatriation of dividends. Transaction Exposure emerges mainly on account of: Transaction Exposure is of three types: He will have to pay more in terms of INR to meet the debt obligation.

The Indian Lender will earn less in terms of INR.

Giddy/Dufey: Managing Foreign Exchange Risk

The parent will get more in terms of INR as dividend. REAL OPERATING EXPOSURE ROE: ROE, MEASURING THE IMPACT ON CASH FLOW: For a precise estimation of the ROE, one has to take the following into the consideration: The difference is ROE.

It emerges on account of consolidation of financial statements of different subsidiaries of a parent MNC. When the ER changes, value of the consolidated financial statement also changes. The extent of this change represents the magnitude of Translation Exposure TsE.

Money A2Z

There are four methods of translation: FORWARD MARKET HEDGE 2. HEDGING THROUGH CURRENCY FUTURES 3. HEDGING THROUGH CURRENCY OPTIONS 4. MONEY MARKET HEDGE NATURAL HEDGES 1.

LEADS AND LAGS 2. MATCHING OF CASH FLOWS FEE affects the MNCs directly while the effect on others is Indirect. Foreign exchange risk and hedging Foreign Exchange Risk Management Currency Risk Management. Managing transaction exposure and economic exposure.

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