Introduction: A countries’ currency is much like other commodities, and the exchange rate fluctuations occur because of a number of economic factors influencing the supply and demand for the nation’s currency. If a nation is facing a high level of inflation, the
To explain: Some of the ways a U.S. company can manage the risk of changes in the exchange rates for foreign currencies.
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ADVANCED FINANCIAL ACCOUNTING-ACCESS
- How do you determine and calculate return and risk on foreign exchange transactions?arrow_forwardHow would the central bank go about intervening?arrow_forwardunder what circumstances can how an international company can use 'leads and lags' to protect itself against foreign exchange risk.arrow_forward
- If a country’s par exchange rate is overvalued, what kind of intervention would that country’s central bank be forced to undertake, and what kind of effect would it have on its international reserves? What must happen if this country’s central bank decides not to intervene anymore?arrow_forwardWhat are the advantages or the disadvantages of hedging with currency options as opposed to future contracts in international financial transactions?arrow_forwardOne of the issues that companies need to address when dealing with foreign currencies is how fluctuations in that currency are handled. What is the dual transaction approach, accrual perspective? How might a company account for exchange rate fluctuations using this approach?arrow_forward
- A U.S. company purchases inventory from a foreign vendor, and purchases are denominated in the foreign currency (FC). The U.S. dollar is expected to weaken against the FC. Explain how a forward contract might be employed as a hedge against exchange rate risk.arrow_forwardWhat are some of the transactions or activities that results in the demand of foreign currency?arrow_forwardWhat factors create a foreign exchange gain on a foreign currency transaction? What factors create a foreign exchange loss?arrow_forward
- How can the company use currency options to hedge against exchange rate risk?arrow_forwardHow foreign currency risk can affect the value of a multinational company?arrow_forwardLeads are deliberate early payments of amounts due to be paid in foreign currency to overseas suppliers, or other foreign currency payments. Leads can avoid the risk that the sterling cost of these payments may rise if the amounts of the payments are quoted in foreign currency and the foreign currency increases in value Under what circumstances can how an international company can use ‘leads and lags’ to protect itself against foreign exchange risk.arrow_forward
- Intermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning