Question

In: Economics

b.Describe one nonfinancial method for managing economic-exposure

b.Describe one nonfinancial method for managing economic-exposure

Solutions

Expert Solution

Economic exposure has a great impact in company's market value. It is long term in nature. It deals with unexpected fluctuations in foreign exchange rates. It is very difficult situation for a company. Companies dealing in foreign currencies have a greater risk of economic exposure.

Non financial method for managing economic exposure:

1. Making operational strategies : Company has to make operational strategies to compete with economic exposure by not focusing on only one or two markets but focusing on a number of markets.

2. Inputs diversity : If the exchange rate fluctuates then company has to purchase inputs at higher rates so company must have many sources of inputs at this stage.

3. Diversifying financing : In the time of economic exposure the company has to raise funds at higher rates so company has to access many sources of raising capital to avoid higher costs of raising capital.

An awareness to economic exposure can reduce market risk. Companies should invest in those stocks which are at less risk during economic exposure.

Rahul Sunny answered 1 year ago
Next > < Previous

Related Solutions

One of the ways to reduce economic and transaction exposure is to restructure. This restructuring involves...
One of the ways to reduce economic and transaction exposure is to restructure. This restructuring involves shifting sources of revenues and costs to other locations in order to match cash inflows and outflows in foreign currencies. Explain the basics of this approach and did the MNC that you chose to write your report on, undertake any such restructuring? Would this restructuring increase translational risk? Does it make sense for an MNC to reduce one risk at the cost of exposing...
One of the ways to reduce economic and transaction exposure is to restructure. This restructuring involves...
One of the ways to reduce economic and transaction exposure is to restructure. This restructuring involves shifting sources of revenues and costs to other locations in order to match cash inflows and outflows in foreign currencies. Explain the basics of this approach and did the MNC that you chose to write your report on, undertake any such restructuring? Would this restructuring increase translational risk? Does it make sense for an MNC to reduce one risk at the cost of exposing...
Briefly describe the following items: 1.Transaction exposure, economic exposure and translation exposure. Which exposure is more...
Briefly describe the following items: 1.Transaction exposure, economic exposure and translation exposure. Which exposure is more relevant to multinational corporation? Please explain 2.Purchasing power parity and Interest rate parity, and their linkage.
Distinguish between the following types of foreign exchange exposure: Transaction exposure Economic exposure Translation exposure Given...
Distinguish between the following types of foreign exchange exposure: Transaction exposure Economic exposure Translation exposure Given 1 example for each.
The key to managing operating exposure at the strategic level is for management to recognize a...
The key to managing operating exposure at the strategic level is for management to recognize a disequilibrium in parity conditions when it occurs and to be pre-positioned to react most appropriately. How can this task best be accomplished?
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?
Which one of following is not a major method of managing risk? A. Loss identification B....
Which one of following is not a major method of managing risk? A. Loss identification B. Loss financing C. Loss control D. Internal risk reduction
Define operating exposure, economic exposure, and competitive exposure. Can you provide any insights into what may...
Define operating exposure, economic exposure, and competitive exposure. Can you provide any insights into what may be behind the use of the different terms?
Discuss the difference between transaction and economic exposure.
Discuss the difference between transaction and economic exposure.
a) Compare and contrast transaction exposure and economic exposure. Why would an MNC consider examining only...
a) Compare and contrast transaction exposure and economic exposure. Why would an MNC consider examining only its “net” cash flows in each currency when assessing its transaction exposure? b) Your employer, a large MNC, has asked you to assess its transaction exposure. Its projected cash flows are as follows for the next year. Danish krone inflows equal DK50,000,000 while outflows equal DK40,000,000. British pound inflows equal £2,000,000 while outflows equal £1,000,000. The spot rate of the krone is $.15, while...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT