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Management Of Currency Fluctuations As a Multi National Company (MNC), our company operates in a number of foreign countries and as a result of this, the company's
currency riskmanagement Currency Risk Management ABC plc is a UK manufacturing company which operates within the UK and mainland Europe. It has recently put in a
These same actions that can protect multinational organizations against interest rate futures and currency fluctuations can be used to create profits for those same
in foreign currencies, which are normally more costly and slower than domestic operations. - Management of several currency accounts, which cause difficulties in
investments expose them to additional risks such as political risks and currency exchange rate fluctuations. The paper will examine these risks in detail including
Submitted by cemaltevrizci on April 29, 2008
Category: Business
Words: 1597 | Pages: 7
Views: 233
Popularity Rank: 61,612
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As a Multi National Company (MNC), our company operates in a number of foreign countries and as a result of this, the company’s monetary transactions occur in a variety of different currencies ($, Euro, Yen). In this occasion we need periodical currency exchanges between our domestic currency and all the other currencies that we have invested. These periodical currency exchanges brings an important problem with it as none of the currencies are stable and they always gain or lose value against each other, and this unstable situation is very risky for all MNCs because, as an example, if a currency is depreciating against our local currency that means all our cash earned in this currency is losing its value and on the other hand if we are planning to invest in another currency, appreciation of this currency means that our investment will cost much more than we expected. This is called the “currency risk”.
Currency changes can be forecasted and there are various forecasting types to get information about the currency changes in the future but all these methods are not precise enough to fully protect the company, so the companies have to manage their exposure to currency fluctuations. There are three types of exposure to currency fluctuations;
-Transaction Exposure: A company’s cashflow in a foreign currency is always under effect of currency fluctuations. To measure the transaction exposure there are two steps;
1. Determining the net amount of cashflows in each foreign currency :
The company has to determine the net amount of cash inflows because there may be cases which different subsidiaries can have equal inflows and outflows of the same currency which will make that currency’s risk negligible. So by projecting the net cashflows of each currency we will be aware of the amount of cash we have in each currency but this information alone does not mean anything as the transaction risk also depends...
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