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Financial Essay

1738 words - 7 pages

International Corporate Finance
11th Edition
by Jeff Madura

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

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Managing Economic Exposure and Translation Exposure
Chapter Objectives

Explain how an MNC’s economic exposure can be
hedged
Explain how an MNC’s translation exposure can be
hedged

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Exhibit 12.1 How Managing Exposure Can Increase an
MNC’s Value

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exhibit 12.2 Original Impact of Possible Exchange Rates on
Cash Flows of Madison Co. (in Millions)

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exhibit 12.3 Impact of Possible Exchange Rate Movements on
Earnings under Two Alternative Operational Structures (in Millions)

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exhibit 12.4 Economic Exposure Based on the Original and
Proposed Operating Structures

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Issues Involved in the Restructuring Decision

Should the firm attempt to increase or reduce sales
in new or existing foreign markets?
Should the firm increase or reduce its dependency
on foreign suppliers?
Should the firm establish or eliminate production
facilities in foreign markets?
Should the firm increase or reduce its level of debt
denominated in foreign currencies?

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exhibit 12.5 How to Restructure Operations to Balance the
Impact of Currency Movements on Cash Inflows and Outflows

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permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

A Case on Hedging Economic Exposure:
Savor Co., a U.S. firm with exposure to the Euro

Assessment of economic exposure: assess the
relationship between the euro’s movement and each
unit’s cash flows over last 9 quarters.
Assessment of each unit’s exposure using
regression analysis
Identifying the source of each unit’s exposure
See Exhibit 12.6

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