1. First, you decide to review basic exchange rate terminology. a. Describe fixed and floating exchange rate...

Question:

1. First, you decide to review basic terminology.
a. Describe fixed and floating systems. What are some problems with these systems?
b. Describe a managed floating rate system.
c. Describe a currency board arrangement system.
2. Next, you review the following parity relationships.
a. Describe forward-spot parity.
b. Describe purchasing power parity.
c. Describe interest rate parity.
d. Describe real interest rate parity.
e. Describe how these four parity relationships link together.
3. Finally, you review the following risks that are relevant to multinational firms.
a. Describe transactions risk and how this risk can be alleviated.
b. Describe translation and economic risks and how these risks can be alleviated.
c. Describe and how this risk can be alleviated.
Five years after completing your college degree you accept an exciting new job with the multinational firm Rangsit Trading Incorporated. This new position will involve a great deal of travel, along with some other challenging responsibilities. Part of your job function is to set company policy to manage risk. As such, you decide that you need to become fluent in the following topics.
Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars... Political Risk
Political risk is the risk an investment's returns could suffer as a result of political changes or instability in a country. Instability affecting investment returns could stem from a change in government, legislative bodies, other foreign...