国际金融英文课件4

Exchange Rate Risks
Transaction exposure: arises from transactions involving future cash flows which are denominated in a currency different from the home currency. This type of risk occurs when the relevant exchange rate changes between the date a transaction agreement is entered into and the date the transaction is financially consummated. Examples of such exposures might include: 1. Revenues and expenses associated with a Parent company’s foreign subsidiary. For example, if the dollar strengthened or appreciated relative to the foreign currency, foreign revenues would be depreciated on a dollar basis (the foreign revenues would be worth less when converted to US dollars than they would have been had the dollar not strengthened). 2. The purchase and financing of assets in another currency. A classic example in the late 1970s, the US dollar was weak relative to the British Pound, and thus there was significant demand among the British for vacations in the US. In response to the demand, Laker Airlines purchased several additional planes, financing them in US dollars. When in the next few years, the dollar strengthened relative to the pound, Laker Airlines had a double problem: a. its revenue were in pounds and its debt largely in dollars; b. the demand for US vacations among the British fell due to the no longer favourable exchange rate. The first problem resulted from a transaction exposure, the second resulted from an operating exposure. Laker airlines went bankrupt in 1982.
International financBaidu Nhomakorabea -2010
Chapter 4 Forward Exchange and International Financial Investment
Topics covered
• Exchange Rate Risks • The Three Traditional Foreign Exchange Instruments • Forward Foreign Exchange • International Investments - with cover - without cover
Exchange Rate Risks
• It is the risk that a business' operations or an investment's value will be affected by changes in exchange rates. • For example, if money must be converted into a different currency to make a certain investment, changes in the value of the foreign currency relative to the home currency will affect the total loss or gain on the investment when the money is converted back. This risk usually affects businesses, but it can also affect individual investors who make international investments, also called currency risk. • The fact that exchange rates can change over time leads people to two types of responses. Some people do not want to gamble on what exchange rates will be in the future. They seek to reduce or eliminate their risk exposure by hedging - the act of reducing or eliminating a net asset or net liability position in the foreign currency. Other people are willing to bet that the rates are going to move in their favour so that they make a profit by speculating, which is the act of taking a net asset position (long) or a net liability position (short) in the foreign currency.