【精品】multinational financial management（跨国公司财务）ch10 measuring and managing accounting exposure（可编辑）.ppt

Multinational Financial Management（跨国公司财务管理）ch10 Measuring and Managing Accounting ExposurePART I.ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSUREI.ALTERNATIVE MEASURESA.TYPES1.Accounting or Translation Exposure:arises when reporting and consolidating financial statements require conversion from subsidiary to parent currency.How Translation Risk ArisesTranslation RiskSubsidiary FinancialsSubsidiary FinancialsSubsidiary FinancialsHeadquartersConsolidatedFinancials$JapanUnited StatesGermanyEconomic Exposure2.Economic Exposure:arises because exchange ratechanges alter the value of future revenues and costs.ALTERNATIVE MEASURES OF FOREIGN EXCHANGE EXPOSUREEconomic Exposure=Transaction Exposure+Operating Exposure Operating Exposurearises because exchange ratechanges alter the value of future revenues and costs.ALTERNATIVE CURRENCY TRANSLATION METHODS3.Nonmonetary accounts-use historical rates-Pertains to inventoryfixed assetslong term investments4.Income statement accounts-use average exchange rate for the period.ALTERNATIVE CURRENCY TRANSLATION METHODSC.Temporal Method1.Similar to monetary/nonmonetarymethod.2.Use current method for inventory.ALTERNATIVE CURRENCY TRANSLATION METHODSD.Current Rate Methodall statements use current exchange rate for conversions.PART III.DESIGNING A HEDGING STRATEGYI.DESIGNING A HEDGING STRATEGYA.Strategiesa management objectiveB.Hedging:basic objective:reduce/eliminate volatility ofearnings as a result of exchangerate changes.DESIGNING A HEDGING STRATEGYC.Hedging exchange rate risk1.Is a cost-center2.Should be evaluated as a purchase of insurance.DESIGNING A HEDGING STRATEGYD.Centralization is key1.Important aspects:a.Degree of centralizationb.Responsibility for its developmentc.Implementation2.Maximum benefits accrue fromcentralizing policy-making,formulation,and implementation.PART II.MANAGING TRANSLATION EXPOSUREI.MANAGING TRANSLATION EXPOSUREA.Choices faced by the MNC:1.Adjusting fund flowsaltering either the amounts or the currencies of the planned cash flows of the parent or its subsidiaries to reduce the firms local currency accounting exposure.MANAGING TRANSLATION EXPOSURE2.Forward contractsreducing a firms translation exposure by creating an offsetting asset or liability in the foreign currency.MANAGING TRANSLATION EXPOSURE3.Exposure nettinga.offsetting exposures in one currency with exposures in the same or another currency b.gains and losses on the two currency positions will offset each other.MANAGING TRANSLATION EXPOSUREB.Basic hedging strategy for reducing translation exposure:1.increasing hard-currency(likely to appreciate)assets2.decreasing soft-currency(likely to depreciate)assets3.decreasing hard-currency liabilities4.increasing soft-currency liabilitiesMANAGING TRANSLATION EXPOSUREHow to increase soft-currency liabilities?reduce the level of cash,tighten credit terms to decrease accounts receivable,increase LC borrowing,delay accounts payable,and sell the weak currency forward.PART IlI.MANAGING TRANSACTION EXPOSUREI.METHODS OF HEDGINGA.Risk shiftingB.Currency risk sharingC.Currency collarsD.Cross-hedgingE.Exposure nettingF.Forward market hedgeG.Foreign currency options MANAGING TRANSACTION EXPOSUREA.RISK SHIFTING1.home currency invoicing2.zero sum mon in global business 4.firm will invoice exports in strong currency,import in weak currency5.Drawback:it is not possible with informed customers or suppliers.MANAGING TRANSACTION EXPOSUREB.CURRENCY RISK SHARING1.Developing a customized hedge contract 2.The contract typically takes the form of a Price Adjustment Clause,whereby a base price is adjusted to reflect certain exchange rate changes.The Zone$1.50/$1.60/Take no actionsTake no actionMANAGING TRANSACTION EXPOSUREB.CURRENCY RISK SHARING (cont)3.Parties would share the currency risk beyond a neutral zone of exchange rate changes.4.The neutral zone represents the currency range in which risk is not shared.MANAGING TRANSACTION EXPOSUREC.CURRENCY COLLARS1.Contractbought to protect against currencymoves outside the neutral zone.2.Firm would convert its foreign currency denominated receivable at the zone forward rate.MANAGING TRANSACTION EXPOSURED.CROSS-HEDGING1.Often forward contracts not available in a certain currency.2.Solution:a cross-hedge -a forward contract in a related currency.3.Correlation between 2 currencies is critical to success of this hedge.MANAGING TRANSACTION EXPOSUREE.EXPOSURE NETTING1.Protection can be gained by selecting currencies that minimize exposure2.Netting:MNC chooses currencies that are notperfectly positively correlated.3.Exposure in one currency can be offset by the exposure in another.