Explain how multinationals can hedge transaction exposure using forwards and options and explain any differences in...

Explain how multinationals can hedge transaction exposure using forwards and options and explain any differences in using forwards and options to hedge currency exposure. Do companies need to always use derivatives such as forwards, futures and options to hedge transaction exposure? If not, explain why not?

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jeff jeffy answered 1 year ago

Describe how forwards, futures, options, and swaps can be used to hedge your foreign risk.

MNCs can use several methods to hedge transaction exposure (futures hedge, forward hedge, Money market hedge...

MNCs can use several methods to hedge transaction exposure (futures hedge, forward hedge, Money market hedge and currency option hedge). Give an example of how a particular company hedges the translation exposure (mention which one(s) of these techniques

Explain how a firm can hedge its translation exposure and the limitations of hedging translation exposure.

conducting a comparison of the alternatives to hedge transaction exposure. Discuss what operating exposure is and...

conducting a comparison of the alternatives to hedge transaction exposure. Discuss what operating exposure is and examine the origins of the operating exposure. What are some alternatives to manage operational exposure? Finish the discussion of operating exposure by introducing translation exposure. Last, analyze different translation methods.

What are ways to manage or hedge transaction exposure. Would you please describe using an example?...

What are ways to manage or hedge transaction exposure. Would you please describe using an example? Thank you!

“Transaction exposure is a cash flow exposure”. Explain.

“Transaction exposure is a cash flow exposure”. Explain. Discuss the term “Triangular arbitrage” and how explain how it differs from one-way arbitrage

Options contracts are an alternative to futures and forwards contracts to hedge FX risk. Why would...

Options contracts are an alternative to futures and forwards contracts to hedge FX risk. Why would investors prefer to use options rather than futures or forwards? Under which future outcomes do options provide an advantage relative to forwards or futures contracts? Why might managers choose not to enter into options contracts?

Explain balance sheet exposure, and discuss how it differs from transaction exposure.

How would you rank the relative importance of transaction exposure, economic exposure, and translation exposure? Explain...

How would you rank the relative importance of transaction exposure, economic exposure, and translation exposure? Explain your answer. If you are the decision maker, will you hedge translation exposure? There are two approaches of hedging: 1) hedge only when we expect an unfavorable movement in foreign exchange rate, and 2) hedge anyway regardless of our expectation of exchange rate movements. Which approach would you use and why?

Forwards, futures and options have been used by financial institutions for many years to hedge risk...

Forwards, futures and options have been used by financial institutions for many years to hedge risk before swaps were invented. If a financial institution already had these hedging instruments, then why they need swaps? In your answer please include a discussion of the differences and similarities of: forwards, futures, options and swaps.

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