Exposures

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HOW ARE EXCHANGE RATE EXPOSURES MANAGED BY MNCs?

BY

0808982

A project report submitted in part requirement for the

M.A in Business Economics

University of Glasgow

School of Business

February 8, 2012

WORD COUNT: 9, 903

TABLE OF CONTENTS

ABSTRACT............................................................................................................................5

1. INTRODUCTION......................................................................................................6

2. LITERATURE REVIEW..........................................................................................9

1. The Framework For FX Determination.............................................................9

2.1.1 Purchasing Power Parity (PPP)....................................................................9

2.1.2 Interest Rate Parity (1RP)..........................................................................11

2.1.3 International Fisher Effect (IFE)................................................................11

2. Types of Foreign Exchange (FX) Exposures....................................................12

2.2.1 Translation Exposure……………………………………………………12

2.2.2 Transaction Exposure…………………………………….……………..13

2.2.3 Economic Exposure……………………………………………...………13

3. Measurement of FX Exposure...........................................................................14