Exam 17: Foreign Exchange: Risk Identification and Management

Discuss the importance of the recording of the expected cash inflows and outflows in estimating transaction exposure.

According to the text,which person(s)in the company is responsible to ensure that operational procedures concerned with FX management are developed?

Consider these five statements: i.If an Australian business decides to hedge a USD receivable at time t + 3,it would hedge through a forward contract in which it sells the AUD forward for t + 3. ii.An Australian exporter with a USD receivable would be hedging through a money market hedge if it borrows USD today and repays the loan on the day on which the USDs are received from the payments of the export account receivable. iii.If an Australian company borrows through an offshore sale of AUD-denominated bonds in the eurobond market,it is not exposed to FX risk. iv.'Internal' hedging techniques may save a company the costs incurred in using 'market-based' hedging techniques,but they have recognisable costs as well. v.A net payable in one currency and a net payable in another currency is a relatively low-risk set of exposures if the amounts and timing are identical,and the correlation coefficient between the two currencies is -0.99. How many of these statements are true and how many are false?

When a company has an open FX position,this means:

A commonly used strategy by Australian exporters for managing FX risk exposure is the practice of invoicing in the home currency.

A Singapore-based manufacturing company that exports to a number of overseas countries,often through its subsidiary companies,is investigating alternative 'internal' hedging techniques to manage its foreign exchange risk exposures.All of the following risk management techniques are 'internal' hedging techniques,except:

The risk for a company that future foreign currency denominated cash flows will vary owing to exchange rate movements is:

Discuss transaction exposure for a firm with only one or two international transactions.

For a company's treasury FX division it is inappropriate policy to allow an FX dealer to carry out the backroom tasks of confirmations,settlements,and reconciliation.

All of the following are internal hedging techniques for foreign exchange exposure,except:

A system of transactions involving borrowing in one currency and lending in another in order to construct a pair of future transactions in the two currencies similar to a forward exchange is a/an:

Consider the following statements: i.'Transaction exposure' refers to the risk that in the long run a company's net present value may be affected by future changes in the foreign exchange rate. ii.Foreign exchange 'economic' risk exposure is a measure of the effect that a change in the exchange rate will have on the value of a company's worth. iii.Foreign exchange risk implies that every change in the exchange rate will have detrimental effects on the home currency value of a company's foreign currency assets,liabilities and transactions. iv.A company's board of directors is responsible for establishing policy in relation to the measurement and management of FX risk exposures within the company. v.If an Australian-based company has a USD 1 million payable and a USD 1 million receivable,both due on 1 July next year,it is not exposed to FX risk. Which of the following are correct?

One of the main risk management techniques to manage accounting exposure is a: