intro

Question 1

How to manage short term exposure to currency risk?

Answer 1

• forwards or futures
• options
• swaps
• second-generation derivatives

Question 2

How to manage long term exposure to currency risk?

Answer 2

Know well:
- suppliers
- customers
- country of production

Question 3

Advantages of going global

Answer 3

• specialization (exploit comp adv)
• better allocation of capital ( reduced cost of cap, more good projects undertaken)
• Portfolio diversification (less portfolio risk, increased risk adjusted return)

Question 4

What exchange rate risk impacts

Answer 4

• revenues
• costs
• profits

Question 5

Country risks come from

Answer 5

• legal barriers
• transaction costs
• quotas and tariffs
• potential for property nationalization

Question 6

Worldwide risk associated to

Answer 6

• financial speculation
• housing bubbles
• home currency vulnerability

Question 7

excessive sectoral concentration leads to

Answer 7

-drop in production
- loss of human capital

Question 8

describe the ideal currency

Answer 8

-low exchange rate volatility
- is convertible
- supports independent monetary policy
- serves as a medium of exchange for other currencies and can even substitute them
- can be used as intervention currency

Question 9

Anglo american and european/japanase (continental) approach to firm management

Answer 9

American is to maximize shareholder wealth while continental is to maximize corporate wealth