Foreign Exchange Risk And International Business Finance Essay - Free Essay Example

Sample details Pages: 3 Words: 818 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Analytical essay Did you like this example? The first things come to the mind when we read the word foreign exchange is, it must be related to international business. And in a way it is true. When companies or individuals get themselves into such activity that involves cash flow in different currencies, the value relationship between those currencies becomes important. This relation is known as foreign exchange rate. The rate at which currencies can be exchanged today (in real time) is known as spot rate of exchange. Don’t waste time! Our writers will create an original "Foreign Exchange Risk And International Business Finance Essay" essay for you Create order The rate on which agreed today, but exchange happens in future is referred as forward rate of exchange. The table below goes sample spot and forward exchange rates as of November 7, 2000 4 Table Exchange Rates as of November 7, 2000 (Quoted as Currency per U S Dollar) Spot Forward Forward forward British Pound 0.6972 0.6968 0.6959 0.6948 French Franc 7.6225 7.6115 7.5908 7.5658 German Mark 2.2728 2.2695 2.2633 2.2559 Japanese Yen 106.99 106.40 105.33 103.77 Thus, a company wanting to convert 10,000,000 French francs into U.S. dollars on a spot basis would receive, FFI0, 000,000- 7 6225FF/$ = $1,311,905 54 Exchanging in the other direction, a company wanting to convert $5,000,000 to British pounds on a spot basis would generate $5,000,000 x 0 6972 /$ = 3,486,000 (Both of these examples ignore any transactions fees or other expenses. The use of forward rates would be illustrated later) Types of Exchange Rate Risks Forex trading has attracted a lot of attention, and many people try their luck trading currencies for profit. Exchange Rate Risk The most widely appreciated risk associated with the foreign exchange market is the risk that an exchange rate will rise or fall unexpectedly. Interest Rate Risk Interest rate risk refers to the uncertainty associated with the interest rates of assets denominated in different currencies. Investors buy currencies with higher interest rates and sell currencies with lower rates, pursuing higher yields. Interest rates largely depend on the central banks short-term interest rates, which commercial banks use as a benchmark for setting their own rates. Settlement Risk Another risk in the foreign exchange market is the settlement riska risk that your counterparty or broker will not be able to honor his contractual commitments on agreed currency transactions. Sovereign Risk Sovereign risk refers to the risks associated with political, legal or other uncertainties associated with a cross-border foreign exchange transaction. (Ref: https://www.ehow.com/list_6682299_types-risk-foreign-exchange.html ) The level of FX risk has increased significantly in last few decades. Specifically with regard to foreign exchange rates, the breakdown of the Bretton Woods Agreement s in the early 1970s led to a more volatile environment m which different currencies often fluctuate sometimes significantly relate to one another Combined with increased volatility m other financial variables. Exposure to foreign exchange risk can take several different forms. Transaction exposure arises from transactions involving future cash flows which are denominated in a currency different felon the home currency This type of risk occurs when the relevant exchange rate changes between the dates a transaction agreement ts entered into and the date the transaction is financially consummated. Examples of such exposures might include: The purchase and financing of assets m another currency A classic example (mentioned m both Smithson (1998) and Campbell and Krakaw (1993)) revolves the now-defunct Laker Alrhnes In the late 1970s, the U S dollar was weak relative to the British pound, and thus there was significant demand among the British for vacations in the U S In response to this demand, Laker Airline purchased several additional planes, financing them m U S dollars When, m the next few years, the dollar strengthened relative to the pound, Laker Airline had a double problem (1) Its revenues were in pounds and its debt largely in dollars (a mismatch which, because of the strengthened dollar, affected the company adversely), and (2) The demand for U S vacations among the British fell (due to the no longer favorable exchange rate) The first problem resulted from a transaction exposure, the second resulted from an operating exposure Laker Airlines went bankrupt in 1982. Translation exposure an accounting-based exposure resulting from a company has to convert asset and/or hardly ~terms from one currency to another for financial statement purposes. This can occur, for example, when a U K parent company must restate the (foreign-denominated) assets and liabilities of a foreign subsidiary in U S dollars for the Parents financial statements. The degree of this risk depends upon the specific accounting rules pertaining to the exchange rate movements and the financial ~terms involved. Operating exposure an exposure associated with the potential impact of changes in exchange rates on the future cash flows of the company. This can also be referred to as economics exposure, since the economic value of a companys a function of the firms future cash flows the above-mentioned second problem experienced by Laker Airlines the change m demand for vacations and the resulting diminished revenue stream due to the strengthened dollars an example of this type of exposure. (Ref: https://ideas.repec.org/p/imf/imfwpa/06-255.html )

The Eu And Uk s Trade - 1234 Words

WORD COUNT: 1028 words Assignment 2016†¨ The EU and UK are undeniably close trade partners seeing as the EU makes for a large proportion of trade deficit with the UK as of 2014. Nonetheless, strong economic growth in many non-EU emerging economies has resulted in important trade activity with these non-EU countries, eating into proportion accounted for by EU since 1999, despite the value of EU trade increasing. The sheer growth in UK’s trade volume is reflected in the downward trend in Graphs 1, 2, 3 below. Considering the total current account balance (Graph 1), UK’s trade deficit has been in decline from 1999 to 2014, with exceptional peaks in 2001, 2006, and 2011. The same pattern is observed in UK’s total trade in goods with the EU (Graph 2). Faster growth in the UK’s terms of trade with the EU deteriorated UK’s overall trade balance with the EU, and significantly widened trade deficits (ONS, 2015). The inference is the high proportion of UK-EU trade is strongly reflected in the current account balance and hence has huge contributions to UK’s trade balance on the whole. The peaks which can be accounted for by neoliberal policies and weakening of the sterling (Pimlott, 2009 and Cadman, 2015) were followed by severe worsening in deficits. This says something about the effectiveness and sustainability of fiscal and monetary policies to improving terms of trade. In spite of that, UK’s improving balance of total trade in goods with the rest of the world somewhat cushionsShow MoreRelatedThe Pros And Cons Of Leaving The European Union1599 Words   |  7 Pages If the UK suddenly lost trade ties to the EU, their balance of payments would surely decrease further. 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An Overview of Project Finance and Infrastructure Free Essays

In the United States s alone, firms financed d S 19 billion o of capital expo punctures using project finance loans and bonds in n 2009, down n from $39 billion in 2008 and $47 billion n in 2007. The he economic crisis, which h began as a housing h crisis in the U. S. We will write a custom essay sample on An Overview of Project Finance and Infrastructure or any similar topic only for you Order Now In n 2007 and SP bread globally y in 2008 and d 2009, froze g global capita al markets, cue retailed bank k lending, and d dramatically reduced p project finance lending. Of or this reason n, it makes sense to look k back at 2007, when thee credit mark sets were pop pen and liquid did, to understand the relative import once of project finance. In the U. S. , firm ms financed $447 billion of capital expense indentures using g project final once in 2007-?much less the Han the $1 , 1 266 billion corp. orate bond m market, the $9 44 billion MO Ortega-backed security market, the $8898 billion asset-backed security market, and the $3 359 billion tax x-free municipal bond ma racket. Yet com marred to fin Nanning much humanism for new or start-u up companies, the $47 billion invested in project companies w was larger the Han the $46 b raised d through initial public offerings (IPSO) and the $332 billion NV vested in new w firms by venture al funds. Private-sector firms have historically used project fin nuance for mind distrust projects such as m mines, pipelines, and oil fields. Begin inning in the early asses, h however, privy ate firms also began financing infrastructure projects such ass toll roads, power plants, and telecoms immunization NSA systems. B More recently, in the 20 Coos, private firms have begun to fin nuance soci al infrastructure projects us such as shoo Owls, hospitals, and prisons. Studies on economic development find d that infrastructure investment is associated with as much as one-for-one percentage increases in g gross domestic product (G GAP), though GHz recent stud dies indicate that every dollar d of increased infrastructure spend ending generates an a Information on some e of these and other projects ca n be found in Benjamin C. Zesty, Modern Project Finance: A C Casebook (New Jersey: Wiley, 200 04). B The infrastructure sector includes WA eater, transportation, electricity, n natural gas, and d telecommunications projects. In n these types of o projects the users of the project or the buyers off the output or eservice are typically individuals rather than companies. Professor or Benjamin C. Est. y and Senior Researcher Aledo Asses off the Global Research Group prepared this note as the basis for class discussion. Copying get 2010, 2011 President and Fellow was of Harvard College. To order copies or request perm session to reproduce materials, call 1-?800-5457685, write Harvard Busing news School Publish hinge, Boston, MA 021 63, or go to www www. Hubs. Harvard. Deed/educators. The his publication may y not be digitized d, photocopied, or otherwise reproduce cued, posted, or trans insisted, without the permission Of H Harvard Business S School. This document is authorized for use only by Bogie Ghana in Financial Management taught by Seward, at University of Wisconsin – Madison from January 201 5 to July 2015. 210-061 An Overview of Project Finance and Infrastructure Finance-? 2009 update increase of $1. 59 in GAP. Country-specific studies of development find that inadequate infrastructure severely hinders economic growth. For example, insufficient or irregular power supply reduces GAP by 1% to 2% in India, Pakistan, Colombia, and Uganda. 3 Despite the growing demand and opportunities for private-sector involvement in building infrastructure, private firms still provide only a small fraction of the total amount invested, which is a small fraction of the total project demand. Indeed, many governments have announced multimillion-dollar stimulus packages with a heavy emphasis on infrastructure spending as a way to stimulate growth during the current lobar recession. How to cite An Overview of Project Finance and Infrastructure, Papers

Samsung Electronics Company Global Marketing Operations free essay sample

Samsung Electronics Company, created in 1969, was first considered as a low-cost third-tier commodity brand with a little product differentiation. By exploring marketing strategies, market research and analysis, Samsung has easily change into a major player in the electronic products and home appliances market. The company has climbed up the rank in the past decade and was in 2003 at the 25th position of the world’s most valuable brand. The goal is now to reach the top 10 by 2005. For that, the brand needs to achieve high level of awareness and to become a truly preferred brand. We will see thought this document what are the ingredients of SEC’s corporate turnaround strategy, which are the individual actions taken by Samsung to build a strong brand and finally determined if Samsung can pass Sony and become a top ten global brand. There were two major ingredients to Samsung corporate turnaround strategy. The first one is when the chairman, Kun Hee Lee, launched the â€Å"new management initiative†, which set out to remake Samsung as a global business leader. We will write a custom essay sample on Samsung Electronics Company: Global Marketing Operations or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Throughout the 1990s, Lee demanded the rethinking of key fundamentals and set the stage for long-term commitment to investment in innovative, premium products and brand value. For that, Samsung viewed vertical integration and investment in manufacturing facilities and research and development as a source of flexibility and control over the entire product process. Samsung invested in many different factories and was also flexible in its choice of plant locations to keep cost low. On the other hand, Samsung offer the possibility to customized some products and as a result Samsung’s average prices were 17% above industry level. The second ingredient was when Samsung transitioned from analogue to a digital technology manufacturer. Its 17 000 scientists, engineers and designers were engaged and thanks to the speedier decision-making processes Samsung could refresh its product line twice as often. The investment in digital technologies through attracting and retaining top scientific talent paved the way for Samsung’s focus on premium high quality products.