(2001) 273–296 www.elsevier.nl/locate/econbase Exchange rate exposure‚ hedging‚ and the use of foreign currency derivatives George Allayannis a‚* ‚ Eli Ofek b a b Darden Graduate School of Business Administration‚ University of Virginia‚ PO Box 6550‚ Charlottesville‚ VA 22906‚ USA Stern School of Business‚ New York University‚ 44 West 4th St. #908‚ New York‚ NY 10012‚ USA Abstract We examine whether firms use foreign currency derivatives for hedging or for speculative
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FERA and FEMA THE Foreign Exchange Regulation Act‚ 1973 (FERA) was repealed and a new Act called the Foreign Exchange Management Act‚ 1999 (FEMA) came into force with effect from June 1‚ 2000‚ with a view to facilitating external trade and payments and promoting orderly development and maintenance of foreign exchange market in India. UNDER the FEMA‚ foreign exchange transactions are divided into two broad categories - current account and capital account transactions. Transactions that alter the
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Chapter 4 Exchange Rate Determination 1. The value of the Australian dollar (A$) today is $0.73. Yesterday‚ the value of the Australian dollar was $0.69. The Australian dollar _______ by _______%. A) depreciated; 5.80 B) depreciated; 4.00 C) appreciated; 5.80 D) appreciated; 4.00 ANSWER: C SOLUTION: ($0.73 – $0.69)/$0.69 = 5.80% 2. If a currency’s spot rate market is _______‚ its exchange rate is likely to be _______ to a single large purchase or sale
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BUSINESS IMPLICATIONS OF EXCHANGE-RATE CHANGES BUSINESS IMPLICATIONS OF EXCHANGE-RATE CHANGES Market Decisions On the marketing side‚ exchange rates can affect demand for a company’s products at home and abroad. A country such as Mexico may force down the value of its currency if its exports become too expensive owing to relatively high inflation. Even though inflation would cause the peso value of the Mexican products to rise‚ the devaluation means that it takes less foreign currency to buy the
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International Financial Management Foreign Exchange Risk Analysis Assignment submitted by: CURRENCY EXPOSURE A currency exposure is any business operation whose profitability can be impacted by a currency exchange rate fluctuation. Currency exposures assume many forms: they can be assets or liabilities; current or committed; contracted or merely forecast; they can be for trade‚ investment or balance sheet purposes. Cases of currency exposure can emerge at any
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EXCHANGE RATES The exchange rate is the price of one country’s currency in terms of another country’s currency Quoted exchange rates can be either direct or indirect‚ Direct: home currency per unit of foreign currency 39 Rupees per US Dollars 80 Rupees per Pound Indirect: foreign currency per unit of home currency 0.0255102 US Dollar per Indian Rupee 0.491594 Pound per Indian Rupee Appreciation of Currency Currency Appreciation means that the given currency
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How is foreign exchange risk managed? An empirical study applied to two Swiss companies. Abstract This paper investigates how two Swiss companies manage their foreign exchange risk and compares the results to theoretical findings and to previous empirical research. We find significant differences in the foreign exchange risk management policies‚ notably in the choice of the type of exposure to cover and in the hedging instruments used. Consistent with previous research‚ forwards
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REVIEW 1 The survey of foreign currency risk awareness and management practices in Tanzania REVIEW OF LITERATURE Foreign exchange risk management Foreign currency exchange risk is the additional riskiness or varience of a firm’s cash flows that may be attributed to currency fluctuations (Giddy‚ 1977‚ Brigham and Ehrhardt‚ 2005). Normally‚ foreign currency risk exists in three forms; translation‚ transaction and economic exposures. Foreign currency risk management involves taking decisions
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Factors that affect exchange rates. Like any price‚ the exchange rate deviates from the cost basis - the purchasing power of currencies – under the influence of supply and demand of currency. The ratio of the supply and demand depends on several factors. It reflects connections with other economic categories - cost‚ price‚ money‚ interest‚ balance of payments‚ etc. There is a complex of interweaving and nomination of decisive factors. Among them are the following. • 1.The rate of inflation. The
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Why are floating rates considered to be superior to fixed rates in dealing with major shocks such as oil price increases? Explain why floating exchange rates did not produce a reduction in the US balance of payments deficit during the early 1980s? Describe the system that was developed to replace floating exchange rates. First we need to explain what fixed and floating exchange rates are. Fixed exchange rate regime is a regime in which central banks buy and sell their own currencies to keep
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