Question
Describe different types of foreign exchange exposure and discuss the techniques to manage these exposures.
Foreign exchange exposure refers to the risk that a company faces when its financial transactions are denominated in a foreign currency. This risk arises because exchange rates can fluctuate over time, which can affect the value of the company's assets and liabilities, as well as its revenues and expenses. There are several types of foreign exchange exposure that a company can face:
1. Transaction exposure: This type of exposure refers to the risk that a company faces when it has to make or receive payments in a foreign currency in the future. For example, if a US company has to pay a supplier ______ _____ __________ ______ _____ ____ ____________ __ _____________ __.
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What do you understand by Purchasing Power Parity (PPP) and Interest Rate Parity (IRP)? Explain with examples.
Explain the characteristics of capital budgeting for multinationals. Why a foreign project should be evaluated both from a project and parent view point.
Describe different types of foreign exchange exposure and discuss the techniques to manage these exposures.
Why does the cost of capital for MNCs differ from that of domestic firm?
Mention the features of the Fixed Parity System of exchange rates.
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