ctu
Pr
of. re
Az by
ar
m
i
Transaction Exposure
What are the two major forms of currency
risks that a fellowship with subsidiaries
in foreign countries faces?
Transaction (or contractual) exposure
Translation exposure
Le
ctu
Pr
of. re
Az by
ar
m
i
What is transaction
exposure?
It refers to gains and losses that may be
incurred, when monetary
transactions are colonized in a foreign
currency.
Le
ctu
Pr
of. re
Az by
ar
m
i
Example of transactions
exposure?
-A association buys (or sells) on credit a
product that is priced in a foreign
currency.
-A debauched borrows (or lends) in a foreign
currency.
Le
ctu
Pr
of. re
Az by
ar
m
i
A British company buys
cars from a German truehearted
-Total contract price Euros 1,000,000
-Payment collectable in 90 days
-Exchange rate Euros 2 / BP 1
The British self-coloured owes
Euros 1,000,000/ Euros 2 / BP 1 = BP 500,000
Le
ctu
Pr
of. re
Az by
ar
m
i
In 90 days the flip rate
may change to Euro 2.05 / BP 1
past the British firm owes
Euro 1,000,000/ Euro 2.05 / BP 1 =
487,805 BP
The dealer saves 12,195 BP due to
transaction exposure
Le
ctu
Pr
of. re
Az by
ar
m
i
In 90 days the exchange rate may
also change to Euro 1.95/ BP 1
Then the British firm owes
Euro 1,000,000/ Euro 1.
95 / BP 1 =
512,821 BP
The dealer pays an extra 12,821 BP due to
transaction exposure
Le
ctu
Pr
of. re
Az by
ar
m
i
What is the German firms
exposure?
None, it gets paying in EURO and all its
costs are in EURO.
Le
ctu
Pr
of. re
Az by
ar
m
i
Should the British firm demand
that the German firm somehow
make up for its transaction
exposure?
Yes. Risk is costly to bear.
After all, the German firm may write the sales
contract for 500,000 British Pounds.
The British firm should consider the
transaction risk exposure as a cost item
in addition to the cost of the cars.
Le
ctu
Pr
of. re
Az by
ar
m
i
The flake Example:
Beecham 1971
Borrowed SF...If you want to get a full essay, rear it on our website: Ordercustompaper.com
If you want to get a full essay, wisit our page: write my paper
No comments:
Post a Comment