consider the appreciation of a currency. what effects might this have on international companies exporting overseas?...

consider the appreciation of a currency. what effects might this have on international companies exporting overseas? what actions could companies take to minimize these effects?

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Expert Solution

International companies who are exporting overseas have their receivables in foreign currencies and when the domestic currency appreciates, it will mean that their overall receivables value will go down, so they will have to hedge their exposure through forward and future markets by selling those foreign currency and settling the contract once they would receive the the foreign currency.

The effect of appreciation in domestic currency will adversely impact the companies exporting outside the domestic territory ,as it will mean that they have their receivables in foreign currency but when the domestic currency have gone up, it means that the value of their receivables will go down, so they will have to hedge through forward and future Markets and other derivatives contract in order to protect from the value of appreciation in domestic currency.

Taking positions in futures and forward markets would help them tto minimise the risk associated with their foreign currency exposure.

jeff jeffy answered 1 year ago

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