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Essay / Research Paper Abstract
This 11 page paper examines the risk of exchange rate movements and the theories that look at how and why exchange rates move and then considers the way in which hedging may be used as a practical tool to reduce the exposure to that risk. The paper uses the example for a forwarding company, but the contents would apply to any company undertaking internationals trade and facing exchange rate risks. The bibliography cites 6 sources.
Page Count:
11 pages (~225 words per page)
File: TS14_TEriskhedge.rtf
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Unformatted sample text from the term paper:
value of the company in the way that profits are enhanced or potentially eliminated as a result of exchange rate movements. The contracts may be agreed a long way in
advance, but unlikely a business were there are many commodities the resources that are used are less suitable for forward agreements and contract will often be in a range of
currencies, due to the nature of the business dealing with different suppliers In different countries. The impact on the way the company is valued in the internal country may
have little value in terms of the exchange rate as a direct input due to the assets held in the home country, but the acknowledgment and ability to deal with
risk can be a stabilising influence as knowledge can lead to the reduction of exposure to risk. For example, in Australia there
were major concerns regarding the volatility of the currency in the early 2000s. In this country as a whole the debt was held in mostly foreign currencies, 77% of the
debt was held in other currencies (Australian Business Intelligence, 2002). With the volatility of the Austrian dollar this increased fears over the ability of Australian companies to pay their debts
and interest payments as a weak dollar would escalate the level, of debt. This placed a major risk in the market place that could impact on the entire market. Fears
such as that of a debt blow-out were eased when it was revealed that there was such a high level of hedging, in turn this also supported the increased stability
of the currency markets and the stock markets (Australian Business Intelligence, 2002). If we consider the risk and how it manifests and is
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