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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Acknowledgement of resources and data source used in the assignment I. Introduction II. Content 1. Main concepts: - Market risks and types of market risks - How companies using derivatives tools to hedging risks: futures contract‚ forwards contract‚ option‚ swap‚ etc. 2. Analysis 2.1. Why choosing Monsanto? 2.2. What is Monsanto? - An American company produces agricultural products‚ herbicides and biotech-related products - Characteristics? Manage their business in two segments: + Seeds and Genomics
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FOREIGN EXCHANGE MARKET Foreign Exchange – Any currency‚ other than the local currency‚ which is used in settling international transactions. Foreign Exchange Rate - the price for which one currency is exchanged for another Foreign Exchange Market - are the institutions or systems involved with changing one currency into another. * Exchange rates are determined on the basis of supply and demand in the foreign exchange market * Foreign currency dealers provide two quotes: Bid Price:
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different way : • SMS Elotherm (contract in 2004) manufactured its parts in Germany and then exported them to the US‚ was payed in dollars from D§C and then translated back in euros : experienced serious losses due to the translation exposure : the currency exchange rate changed and had impact on the benefits of the company. SMS Elotherm could’nt rise its prices to cover its costs‚ because of market pressures which impose low price : in this case‚ it would have been not any more competitive • Keiper
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company has already entered that result in foreign exchange exposures. A company may have a transaction exposure if it is either on the buy side or sell side of a business transaction. Any transaction that leads to an inflow or outflow of a foreign currency results in a transaction exposure. For example‚ Company A located in the United States has a contract for purchasing raw material from Company B located in the United Kingdom for the next two years at a product price fixed today. In this case‚ Company
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Porsche 1. How does Porsche differ – operating structure‚ financial results‚ etc. – from other major European-based auto manufacturers? To begin with Porsche is a privately owned company controlled by the Porsche and Piéch family. They hold all the 8.75 million voting shares while mainly large institutional investors hold the other 8.75 million non-voting shares. Despite the fact that stock exchange and analysts’ requests more frequent and more detailed financial reporting Porsche is not
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With put options on the foreign currency B. With call options on the foreign currency C. Both a) and b)‚ depending upon the specifics ("the rest of the story") D. With futures contracts. Answer: A the alternative is to buy a put option on foreign currency in that it will accept the bidding and lessen exchange rate. 3. The current exchange rate is €1.25 = 1.00 and a British firm offers
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FNCE 404 Exam Review – Fall2012 Prof. Eloisa Perez Q1. Micca Metals‚ Inc. is a specialty materials and metals company located in Detroit‚ Michigan. The company specializes in specific precious metals and materials which are used in a variety of pigment applications in many other industries including cosmetics‚ appliances‚ and a variety of high tinsel metal fabricating equipment. Micca just purchased a shipment of phosphates from Ghana for 10‚000‚000 cedis‚ payable in six months. Micca’s cost of
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hard currency. Most loans to the Third World have to be repaid in hard currencies. Hard currencies are stable currencies; that means their value does not change very much. The Japanese yen‚ the American dollar and the Swiss franc are examples of hard currencies. Developing countries have soft currencies - they go down in value. Therefore‚ when the value of a developing country’s money goes down (as it often does)‚ the cost of its debt rises. It takes more of the country’s own currency to pay
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Hull J C. Optionsfuturesand other derivatives seurities.3rd ed. Upper Saddle River: Prentice-Hall199749-141Brealey R‚ Kaplanis E. Discrete exchange rate hedging strategies. Journal of Banking and Finance‚ 1995‚ 19:765-784(Briys E‚ Solnik B. Optimal currency hedging ratios and interest rate risk. Journal of International Money and Finance‚ 1992‚ (11): 431-445)
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