“Exchange rates are the amount of one country’s currency needed to purchase one unit of another currency (Brealey 1999, p. 625)”. People wanting to exchange some money for their vacation trip will not be too much bothered with shifts if the exchange rates. However, for multinational companies, dealing with very large amounts of money in their transactions, the rise or fall of a currency can mean getting a surplus or a deficit on their balance sheets. What types of exchange rate risks do multinational companies face?
One type of exchange risk faced by multinational companies is transaction risk. If a company sells products to an overseas customer it might be subject to transaction risk. If a UK company is expecting a payment from a US customer in June and the invoice was made in January, the exchange rate is bound to have changed during the period. If the deal was worth £1,000,000 and the american dollar compared to pound sterling weakened from US$1.40 in January to US$1.50 in June, the UK company would loose £47,619 (Appendix A).
Economic risk is another type of exchange risks companies have to consider when dealing globally. Changes in exchange rates are bound to affect the relative prices on imports and exports, and that will again affect the competitiveness of a company. An UK exporter dealing with companies in the US would not want the US$ to depreciate, because it would make the exports more expensive for the US market, thus the company will loose business.
Other types of exchange rate risks are translation risk and so-called hidden risk. The translation risk relates to cases where large multinational companies have subsidiaries in other countries. On the financial statement of the whole group, the company may have to translate the assets and liabilities from foreign accounts into the group statement. The translation will involve foreign exchange exposure. The term hidden risk evolves around the fact that all companies are subject to exchange rate risks, even if they don’t do business with companies using other currencies. A company that is buying supplies from a local manufacturer might be affected of fluctuating foreign exchange rates if the local manufacturer is doing business with overseas companies. If a manufacturer goes out of business, or experience heavy losses, it will affect all the companies it does business with. The co...
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A UK exporter invoicing US$1,000,000 in January for payment in June.
January: US$1.40 £714,286
February: US$1.50 £666,667
Loss on transaction: £47,619 (£714,286 - £666,667)
i. A company borrows £100,000 from a bank at 8% interest rate.
£100,000 X 1.08 = £108,000
ii. A company borrows £2,000,000 in 1998, with a fixed interest rate of 8%, payable annually for a 5 year period.
Fixed annual interest, 8%: £2,000,000 X 0.08 = £160,000
New annual interest, 6%: £2,000,000 X 0.06 = £120,000
Annual loss, 6% vs. 8%: £160,000 - £120,000 = £40,000
http://www.expedia.com, 22/11/2000, http://www.expedia.com/pub/Agent.dll
Brealey, Richard A., Marcus, Alan J., Myers, Stewart C. 1999, Fundamentals of Corporate Finance, 2nd edn, Craig S. Beytien, USA.
Howells, Peter., Bain, Keith 2000, Financial Markets and Institutions, 3rd edn, Henry King Ltd., Great Britain.
Ritter, Lawrence R., Silber, William L., Udell, Gregory F. 2000, Money, banking, and Financial Markets, 10th edn, USA.
The religious rules were set up for the purpose of strengthening the core Christian beliefs among the Salem villagers. One person who had a prominent contribution in the spread of Christianity throughout Salem village at that period was Reverend Samuel Parris. At that time, church membership was restricted to children whose at least one parents were in full spiritual union (Ray, “Satan’s War against the Covenant” 74). Most of the villagers who were wishing to be baptized did not fall under this constricting criteria, and thus most of them could not become a member of the church. As the church was not legally established between 1672 and 1689, it lacked an ordained minister, and thus most villagers were neither baptized nor communed (Ray, “Satan’s War against the Covenant” 75). Communion was restricted and in order to receive communion one must undergo elaborate procedures. After receiving communion, one was observed for one month, and if for any reasons one exhibited immoral character during that time, he was deprived of the privilege of communion and was permanently excluded from receiving baptism. They were also banned and disgraced from the church (Ray, “Satan’s War against the Covenant” 76). At first, the church did not differentiate between members and non-members and everyone was warmly welcomed to the church. But after the start of the Convent by Parris,
Giving good reason for what legalizing marijuana can do for the United States and how we can gain a lot from legalizing marijuana, but she is able to pull back her reader on why you should not be tamped by what good marijuana can do. The author of the article view that the negative effects of marijuana are a huge deal, since marijuana tempers with the human brain and that even though it has its pros, the cons win since it’s more harmful if not use properly or the drug is used to much or use often. As well that we still don’t know that much about marijuana and that there should be more studies on marijuana, since we can still learn more about
Residents of Salem Town relied on farmers for food and collected tax from their village. Salem Village desperately tried to gain independence from Salem Town for many years yet there was no separation between the dyad. Farmers of Salem Village believed the Salem Townspeople quality of character endangered their Puritan values. Tension grew worse once Salem Village chose Reverend Samuel Parris as their new minister. Parris was a flinty Puritan that discredited Salem Town’s prosperity as the work of the Devil. It's probable that jealousy played a major role in the witch trials, most accused lived near Salem Town, and Reverend Parris was a zealous supporter of the witch trials with a deep hatred for residents of...
There were many major controversies throughout history. The Salem Witch Trials was one of those major catastrophes. The Trials caused panic and hysteria throughout Salem. Many innocent people died or went to jail for being accused a witch. People who were considered to be their friends or neighbors were turning on them accusing them of witchcraft. This event caused problems with trust and paranoia between many people. Turns out that the Salem Witch Trials were just a hoax after all.
Globalization has led to an increase in multinational companies that produce different types of goods. Although these multinational corporations have been reaping substantial benefits as a result of market expansion, they face a greater risk of losing their international revenues as a result of fluctuations in exchange rates. Changes in the exchange rate between the countries expose the home company to various risks such as transaction exposure, translation, and economic exposure. As a result, the value of the firm is affected by fluctuation in the exchange rate. To effectively manage the exposures, companies use various hedging strategies such as the use of forwards contracts.
Evins states her opinion on the idea of marijuana becoming legal. In her report, she tells readers marijuana should not become legalized for many reasons where she uses various scientific studies to back up her opinion. Dr. Evins goes into great deal about several harmful side effects that come with smoking marijuana mainly focusing on the unhealthy effects on the brain. Further, she elaborates on the addictiveness of marijuana and the repercussions of long-term use, often comparing nicotine and marijuana. Deeper into Evins’ analysis she tells reader should marijuana become legalized mental disabilities will become more prevalent because in certain individuals the use of marijuana can trigger mental disorders. Dr. Evins then concludes her essay by re-elaborating her main points on the harmful side effects of using marijuana. Dr. Evins closes her essay telling readers, “As a society, we are going in the wrong direction on
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There has always been controversy about marijuana and the affects it has on health and the issue of legalization. Some people believe it is very destructive to one’s health, and yet others feel the complete opposite about it. Is Marijuana truly harmful to one’s health? “Marijuana, the Deceptive Drug”, written by George Bierson, was published in the Massachusetts News. In this article, Bierson determines that marijuana is harmful in many ways. He seems to think that it damages the brain, the reproductive system, and also contributes to the halt of production in the immune system. Bierson also tries to persuade the reader that marijuana is a “gateway drug” that leads to larger drugs in the future. However, by conducting research of my own, I have come to the conclusion that Bierson’s article simply lacks truth.
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The foreign exchange market is one of important mechanism in the international business because foreign exchange is an intermediary for all nations in term of the growth of the economy. There are many functions of foreign exchange market in the global economy. In the international business, it uses the foreign exchange markets in four ways. First, the pay...
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