Got a tricky question? Receive an answer from students like you! Try us!

Exchange Rate Risk - Assignment Example

Only on StudentShare
Pages 5 (1255 words)


In this world of modern technology and globalization, international trade and business is a skill that any successful company must learn to master. Though attempts to universalize currency have successfully created the Euro in most of Europe, international and fluctuating exchange rates as well as international banking has had an enormous impact on modern business…

Extract of sample
Exchange Rate Risk

The term exchange rate risk is used to define the possibility that, because of fluctuation currency values, companies dealing in more than one currency may end up with more or less of a profit. In the Bruce Company's case, a fluctuation of 1.45733 Euros per Sterling denotes a negative exchange rate risk. Put more simply, the Bruce Company must pay the French company a total sum of 4.48 million Euros in four equal installments of 1.12 million Euros. Because the Sterling is currently stronger than the Euro, Bruce Company will loose money during four separate transactions in which their stronger currency is converted to the weaker currency.
Thus, Bruce Company must determine a way to hedge against the exchange rate risk, or take out another investment specifically to reduce or eliminate this risk. One way to hedge against this risk is allowing the sterling to accrue interest in a money market account. ...
Download paper
Not exactly what you need?

Related Essays

The Implications For An Economy Of A Rising Exchange Rate
The performance of a specific currency is determined by the demand for the currency and the investments on the economy. An increased exchange rate of a country’s currency in relation to world currencies such as the dollar influences negatively on the export of the country’s products. On the other hand, the cost of imports is decreased by a strengthening currency and therefore more goods and…
11 pages (2761 words)
Global financing and exchange rate topics: Corrency hedging
This paper will discuss how currency hedging is practiced in global financial operations. It will also explain the significance of currency hedging in managing risks. Currency Hedging To define, “Hedging means securing oneself against loss from various risks that arises in international financial markets”(Machiraju, 2007), p.94). Currency hedging is a technique related to the hedging concept…
4 pages (1004 words)
Managing Interest Rate and Exchange Rate Volatility Assignment
Buckley (1996) identifies two other types of interest rate risk, which include basis risk and Gap risk.…
12 pages (3012 words)
Foreign Exchange Risk
Exporting and importing also implies considerable foreign exchange risks for the companies involved. Importers will have to pay a higher price if their home currency depreciates against the exporting foreign country and vice versa. International retailing operations also entail high exposure to foreign exchange risk as the exchange rate of any of the two countries fluctuates. The fluctuations in…
6 pages (1506 words)