Measuring and Managing Translation and Transaction Exposure
The stream of time sweeps away errors, and leaves the truth for the inheritance of humanity.
GEORGE BRANDES
LEARNING OBJECTIVES
- To define translation and transaction exposure and distinguish between the two
- To describe the four principal currency translation methods available and to calculate translation exposure using these different methods
- To describe and apply the current (FASB-52) currency translation method prescribed by the Financial Accounting Standards Board
- To identify the basic hedging strategy and techniques used by firms to manage their currency transaction and translation risks
- To explain how a forward market hedge works
- To explain how a money market hedge works
- To describe how foreign currency contract prices should be set to factor in exchange rate change expectations
- To describe how currency risk-sharing arrangements work
- To explain when foreign currency options are the preferred hedging technique
- To describe the costs associated with using the different hedging techniques
- To describe and assess the economic soundness of the various corporate hedging objectives
- To explain the advantages and disadvantages of centralizing foreign exchange risk management
Foreign currency fluctuations are one of the key sources of risk in multinational operations. Consider the case of Dell Inc., which operates assembly plants ...
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