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International Finance Coursework - Essay Example
Finance & Accounting
Pages 6 (1506 words)
Name Subject Date International Finance Coursework 2 Question (a) The Currency Exposure Faced by the British Venture Capitalist The currency exposure is a corporation’s insecurity with respect to its future operating cash flows. It can be simply understood as the possible loss that results from a change in the exchange rates…
A firm therefore needs to keep the exchange rate risk at bay. Most firms do so by determining the specific type of exposure to risk, the hedging approach and they also find available instruments to deal with these currency risks. The international transactions the British Venture Capitalist is involved in, exposes them to exchange rate risk. They therefore have to plan in advance and take measures that will protect them against these risks to avoid incurring great losses. There are different types of risks or currency exposures the British Capitalist faces: Transaction risk or simply known as the cash ?ow risk deals with the effect of exchange rate changes position on transactional account exposure linked to receivable, or repatriation of dividends and payables. Any change in the currency exchange rate results in a transaction risk. Translation risk also known as balance sheet exchange rate risk shows the relationship of exchange rate change position to the valuation of a foreign subordinate firm and, in turn, to the consolidation of a foreign subordinate firm to the mother corporation’s balance sheet. ...
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