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Managing foreign exchange exposure

Managing foreign exchange exposure. Concepts and examples. Foreign exchange exposure. FEXEX measures the impact of exchange rate volatility on firm's operations. . Foreign exchange exposure. Accounting exposure Operating (economic) exposure Transaction exposure .

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Managing foreign exchange exposure

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  1. Managing foreign exchange exposure Concepts and examples

  2. Foreign exchange exposure • FEXEX measures the impact of exchange rate volatility on firm's operations.

  3. Foreign exchange exposure • Accounting exposure • Operating (economic) exposure • Transaction exposure

  4. Accounting (translation) exposure • Accounting-based changes in the consolidated financial statements caused by a change in exchange rates

  5. Operating (economic) exposure: • Change in cash flows due to unexpected changes in exchange rates .

  6. Transaction exposure: • Changes in the value of outstanding financial obligations incurred prior to a change in exchange rates but not due to be settled until after the exchange rates change.

  7. Managing foreign exchange exposure • Financial engineering • Strategic approach

  8. Managing foreign exchange exposure: Financial engineering • Currency futures • Currency forward contracts • Currency options • Back-to-back loans and swaps • Leading and lagging • Currency-risk sharing clauses

  9. Managing foreign exchange exposure: Strategic approach • Matching currency cash flows • Adjusting promotional strategies • Diversifying operations

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