tailieunhanh - Ebook International financial management (12th edition): Part 2

(BQ) Part 2 book "International financial management" has contents: Managing transaction exposure, managing economic exposure and translation exposure, direct foreign investment, direct foreign investment, international corporate governance and control, country risk analysis,.and other contents. | 11 Managing Transaction Exposure CHAPTER OBJECTIVES The specific objectives of this chapter are to: ■ compare the techniques commonly used to hedge payables, ■ compare the techniques commonly used to hedge receivables, Transaction exposure exists when there are contractual transactions that cause a multinational corporation to either need or receive a specified amount of a foreign currency at a specified time in the future. The dollar value of payables could easily increase by 10 percent or more within a month. The dollar value of receivables could easily decline by 10 percent or more within a month, which might completely eliminate the profit margin on the sale of the product. For this reason, most MNCs may consider the hedging of contractual transactions denominated in foreign currencies. By managing transaction exposure, financial managers may increase the MNC’s future cash flows, or at least reduce the uncertainty surrounding the MNC’s cash flows, and thereby enhance the value of the MNC. ■ describe limitations of hedging, and ■ suggest other methods of reducing exchange rate risk when hedging techniques are not available. 11-1 POLICIES FOR HEDGING TRANSACTION EXPOSURE An MNC’s policy for hedging transaction exposure depends in part on its management’s degree of risk aversion. An MNC may choose to hedge most of its transaction exposure or to hedge selectively. 11-1a Hedging Most of the Exposure Some MNCs hedge most of their exposure so that their value is not strongly influenced by exchange rates. Multinational corporations that hedge most of their exposure do not necessarily expect that hedging will always be beneficial. In fact, they might even use some hedges that will likely result in slightly worse outcomes than no hedges at all, just to avoid the possibility of a major adverse movement in exchange rates. Hedging most of the transaction exposure allows MNCs to more accurately forecast future cash flows (in their home currency) so that they .