Measuring and Managing
Foreign Exchange Exposure
International Financial Management
1
, International trade Exposures
• Political risks
• Competition
• Cultural differences
• Exchange rate exposure
• Government controls
• Shipping risks
2
, Learning Objectives
• What are the three different types of foreign
exchange exposures?
• How is translation and transaction exposure
measured?
• What are the two primary methods of converting
foreign currency denominated financial statements
into the reporting currency of the U.S. parent
company?
• What are the basic hedging strategies and
techniques used by firms to manage their currency
transaction and translation risks?
3
Foreign Exchange Exposure
International Financial Management
1
, International trade Exposures
• Political risks
• Competition
• Cultural differences
• Exchange rate exposure
• Government controls
• Shipping risks
2
, Learning Objectives
• What are the three different types of foreign
exchange exposures?
• How is translation and transaction exposure
measured?
• What are the two primary methods of converting
foreign currency denominated financial statements
into the reporting currency of the U.S. parent
company?
• What are the basic hedging strategies and
techniques used by firms to manage their currency
transaction and translation risks?
3
