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Hedging against a Weak Dollar - Essay Example
Finance & Accounting
Pages 8 (2008 words)
Hedging against a Weak Dollar Executive Summary In globalized marketplaces, the necessity to deal in foreign currency is inescapable. The process of acquiring a foreign currency for foreign business activities can be daunting, requiring business forethought and prior contractual arrangements…
This paper aims to discuss financial hedging against a weak dollar. A. Euro/US dollar Rate of Euro/Dollar over the last five-year period For the five-year period ranging from 2007 to the end of 2011, the US dollar has experienced numerous fluctuations. The highest value of the Euro in comparison to the dollar was 1.5991, during the 2008 global economic crisis, when American multinationals were going into bankruptcy or requesting bailouts by the government. The lowest value was 1.1923, in the year 2010, two years after recovery from the meltdown. Performance of the dollar against the euro for a five-year period Rate of Euro/Dollar over last year Over the course of last year (2011), the dollar reached its highest and lowest points for the period at the start and at the end of the year. At these times, the dollar was stronger in relation to the Euro. In the middle of the year, the dollar was weaker in comparison to the Euro for the year, and almost reached a rate of 1.5 against the Euro in comparison to the beginning and the end of the year when it was below 1.3 against the Euro. B. Key issues affecting the Euro over the last year Capital Mobility Another short-run determinant to exchange rates between the euro and the dollar is the growing capital mobility across the globe. ...
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