International Financial Management Abridged 10 Edition: by Jeff Madura
International Financial Management Abridged 10 Edition: by Jeff Madura
International Financial Management Abridged 10 Edition: by Jeff Madura
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
10
Measuring Exposure to
Exchange Rate Fluctuations
Chapter Objectives
This chapter will:
A. Discuss the relevance of an MNC’s exposure to exchange rate risk
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Forms of Exchange Rate Exposure
1. Transaction exposure
2. Economic exposure
3. Translation exposure
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Transaction Exposure
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Exposure of an MNC’s Portfolio Affected by:
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Transaction Exposure Based on Value at
Risk (VaR)
1. Measures the potential maximum 1-day loss on the
value of positions of an MNC that is exposed to
exchange rate movements.
2. Factors that affect the maximum 1-day loss:
a. Expected percentage change in the currency rate for the next
day
b. Confidence level used
c. Standard deviation of the daily percentage changes in the
currency
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Using Value at Risk
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Economic Exposure
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Measuring Economic Exposure
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Translation Exposure
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.