tailieunhanh - Lecture Multinational financial management - Topic 13: Competitive exposure and real currency appreciation

In this chapter, students understand and can recall why changes in real exchange rates matter, how to measure competitive exposure, how to manage competitive exposure; students can calculate real exchange rate appreciation, competitive exposure and loss due to exchange rate changes. | Topic #13: cOMPETITIVE Exposure and real currency appreciation L. Gattis Finance 407: Multinational Financial Management 1 Poll BMW expects to earn 100M Swiss francs in 60 days. What is the 95%, 60 business day CaR if the annualized standard deviation of the €/Sf is 10% and the spot rate is € Assume 260 days in a year for the computation of daily standard deviation. Hint: Z(.95)= A. € B. € C. € D. € E. € 2 Learning Objectives Students understand and can recall why changes in real exchange rates matter how to measure competitive exposure how to manage competitive exposure Students can calculate real exchange rate appreciation competitive exposure and loss due to exchange rate changes 3 Forex Exposure I. Translation “Accounting” Exposure arises when reporting and consolidating financial statements require conversion from foreign currency to home currency. It is a possible accounting gain/loss on foreign assets and liabilities which are reported as | Topic #13: cOMPETITIVE Exposure and real currency appreciation L. Gattis Finance 407: Multinational Financial Management 1 Poll BMW expects to earn 100M Swiss francs in 60 days. What is the 95%, 60 business day CaR if the annualized standard deviation of the €/Sf is 10% and the spot rate is € Assume 260 days in a year for the computation of daily standard deviation. Hint: Z(.95)= A. € B. € C. € D. € E. € 2 Learning Objectives Students understand and can recall why changes in real exchange rates matter how to measure competitive exposure how to manage competitive exposure Students can calculate real exchange rate appreciation competitive exposure and loss due to exchange rate changes 3 Forex Exposure I. Translation “Accounting” Exposure arises when reporting and consolidating financial statements require conversion from foreign currency to home currency. It is a possible accounting gain/loss on foreign assets and liabilities which are reported as losses in income or adjustments to equity (Translation exposures often lead to cashflow losses when account are liquidated) II. Cashflow Exposures Transaction Exposure: potential gains or losses on foreign transactions such as bond payments and receivables paid in the foreign currency. (Up until a payment is made, these are only translation exposures) Competitive Exposure: long-term exposure to currency change on future business. 4 Transaction vs. Competitive Exposure Suppose your . based firm, produces widgets in Pennsylvania, which cost $100, and sells in Germany for €84 at an exchange rate of $ per euro. Profit: Short-term Transaction Risk (cannot change cost or prices in the short-term) What are profits if the euro depreciates 10%? Profit= A. $0 B. $ C. $ D. -$ E. -$ What was the USD appreciation? USD Appreciation= A. B. C. 5 Competitive Exposure: Costs and Prices can Change in the Long Run Long-term Competitive Risk depends on your .