Applied International Finance

CHAPTER 1

Foreign Exchange Operating Exposure

Many companies operate globally, taking raw materials from some countries, producing parts in other countries, assembling in still other countries, and competing to sell final products in markets at various places in the world. Many other companies operate only in their home country or have only limited international operations. But regardless of the scope of a firm’s international operations, volatile foreign exchange (FX) rates can impact profitability and growth.

The risk that future FX rate uncertainty poses to a company is determined by both how volatile the FX rate is and the company’s FX exposure, which is the sensitivity of its operating and financial results to the FX rate changes. In 2001, ...