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International Corporate Finance - Case Study Example
Author : alexiekoch
Pages 14 (3514 words)
I would agree with the views of the sales manager as indeed a through consideration of the international risk exposures and the relevant techniques for avoiding them is very important for multinational firms like the one before us. International Currency risk is one of the risks most international firms face in connection with foreign exchange rates.1The problem arises when future payments or remunerations payable in a foreign currency depreciate in value before the foreign currency payment is received and is exchanged into the local currency of the firm…
Here the banks will use the forex rate on which they are willing to buy or sell the currency with in a month or more after the transaction.3
It can be seen that due to the volatile and unpredictable nature of the forex markets during times of political or economic crisis both these markets carry a considerable risk for the multinational firms. The preceding discussion in the other sections will assess the types of strategies which can be used to avoid these risks and their feasibility in the short and long term.
There are a number of risks facing VFM right now in terms of the foreign exchange and political risks involved here. These can Credit risk , Liquidity risk , Solvency risk , Operational risk , Market risk and Interest rate risk. (Aharony, 1986.Risks like operational risks (which have been defined by the Basel Committee(Basel II) arise from 'inadequate or failed processes, people and systems or from external events'.
( Hsaio 2008) .Operational Risks cover a wide category of risks which pertain to human error or technical deficiencies.(Black,1972) and are related to all other types of risk such as cap ...