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Exposure to Currency Risk: Definition and Measurement
Finance & Accounting
Pages 11 (2761 words)
Running Heading: Strategic Finance Strategic Finance [Name of Student] [Name of Instructor] [Course] PAPER FOR CHIEF EXECUTIVE OFFICER INTRODUCTION Starting a new venture or moving to another country is not an easy task because the investor or the company not only has to face usual risk that a business faces but it has to deal with the exchange rate risk or translation risk (Gitman, 2003).
However, if the investment is profitable and the management expects that it would pay dividends for taking the risk then there is no harm in making the investment. CURRENT SCENARIO Currently the board of directors of the company are analysing the feasibility of setting up a subsidiary company in European Union. However in order to start a new subsidiary company it is important for the management to know what important concepts and factors they have to consider while moving from one state to another. This report analyse important concepts that the management should know while setting up a new subsidiary in European Union. This report to the CEO of the company is mainly divided into three parts; the first part explains about the foreign currency translation and related terms, the second part explains about the feasibility of forecasting spot and forward rates of exchange and how management can use it effectively for the company, and the third part explains the internal and external hedging techniques. FOREIGN CURRENCY TRANSLATION The rate at which one currency is exchanged for the other currency is called as the Exchange Rate or foreign exchange rate (O'Keefe, 2010). ...
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