TAILIEUCHUNG - Lecture Financial institutions, instruments and markets (7e): Chapter 17 – Viney, Phillips

Chapter 17 - Foreign exchange: risk identification and management. In this chapter, students will be able to: Recognise FX transaction, translation, operational and economic risk, formulate an FX policy document, outline methods to identify a company’s FX exposures, describe the implementation of market-based hedging techniques, explain internal non-market-based techniques for managing FX risk. | Chapter 17 Foreign exchange: risk identification and management Learning objectives Recognise FX transaction, translation, operational and economic risk Formulate an FX policy document Outline methods to identify a company’s FX exposures Describe the implementation of market-based hedging techniques Explain internal non-market-based techniques for managing FX risk Chapter organisation FX risk policy formation Measuring transaction exposure Risk management: market-based hedging techniques Risk management: internal hedging techniques Summary FX risk policy formation Foreign exchange risk exposures can be classified in terms of their impact on a firm’s cash flows, balance sheet, competitive position and value Transaction exposure Translation or accounting exposure Operational exposure Economic exposure (cont.) FX risk policy formation (cont.) Transaction exposure The risk that future foreign currency denominated cash flows will vary on account of exchange rate movements . a contract to import goods from the US denominated in USD (cont.) FX risk policy formation (cont.) Translation or accounting exposure The risk that conversion and consolidation of foreign currency assets or liabilities will impact adversely on the balance sheet . a firm accumulates assets and liabilities overseas and at a future date translates their value onto its consolidated balance sheet (cont.) FX risk policy formation (cont.) Operational exposure The risk that day-to-day operating revenues and expenses will be affected by FX movements . foreign subsidiary operating expenses paid in the currency of the foreign country but sourced in another country such as the parent company (cont.) FX risk policy formation (cont.) Economic exposure The effect of exchange rate movements on the ongoing business operations of a firm (. the net present value of its future cash flows) It includes both transaction exposures and

• Tài chính doanh nghiệp
• Financial institutions
• Financial Instruments
• Financial markets
• Financial system
• FX risk policy formation
• Measuring transaction exposure
• Lecture Financial markets and institutions
• Financial institutions markets
• Risks at financial institutions
• Market risk
• Savings institutions
• Credit unions
• Commercial banks
• Financial statements
• Financial markets and institutions
• Interest rates change
• Financial institutions exist
• Central banking
• Capital markets
• Money markets
• Interest rate fundamentals
• Interest rates
• Security valuation
• Federal reserve system
• Monetary policy
• Money market yields
• Bond markets
• Municipal bonds
• Mortgage markets
• Primary mortgage market
• Stock markets
• Common stock
• Foreign exchange markets
• Foreign exchange
• Derivative securities markets
• Futures markets
• Commercial bank liabilities
• Regulation of commercial banks
• Deposit guarantee funds
• Insurance companies
• Life insurance companies
• Securities firms
• Investment banks
• Mutual funds
• Hedge funds
• Pension funds
• Private pension funds
• Managing credit risk
• Balance sheet
• Managing liquidity risk
• Managing interest rate risk
• Insolvency risk
• Managing risk
• Loan sales
• Managing risk off the balance sheet