TAILIEUCHUNG - Lecture Multinational financial management - Topic 12: Measuring and managing transaction exposure

In this chapter students understand and can recall methods for measuring and managing transaction exposure; the definitions, implementation, and use of CaR to measure exchange rate risk; students can calculate transaction exposure/loss, students can calculate CaR given cashflow information and exchange rate volatility. | Topic #12: Measuring and managing transaction exposure L. Gattis The Pennsylvania State University 1 Finance 407: Multinational Financial Management Poll 2 Caterpillar’s Japanese subsidiary has yen receivables of ¥100M, payables of ¥200M, and debt of ¥300M. The USD is designated the functional currency. The accounts are recorded on the balance sheet at a spot rate of ¥. What is the translation gain or loss if the exchange rate is ¥85 at the end of the reporting period. A. -$94,310 B. +$94,310 C. -$668M D. +$668M Poll 3 Caterpillar’s Japanese subsidiary has yen receivables of ¥100M, payables of ¥200M, and debt of ¥300M due in 45 business days. The USD is designated the functional currency. What is Caterpillars 95%, 45 day, EaR if the annualized volatility of the $/Yen daily returns is 10% and the spot price is $.012/¥ (¥$)? (Assume 260 business days in a year to compute daily standard deviation) A. $.033M B. $.33M C. $ D. $33M E. $330M Learning Objectives 4 Students .

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