Numerous exchange rate forecasting services exist. Trident’s CFO Maria Gonzalez is considering whether to subscribe to one of these services at a cost of $20,000 per year. The price includes online access to the forecasting service’s computerized econometric exchange rate prediction model. What factors should Maria consider when deciding whether or not to subscribe?
Answer to relevant QuestionsExplain the meaning of “cross-rate consistency” as used by MNEs. How do MNEs use a check of cross-rate consistency in practice? Many MNEs have established transaction exposure risk management policies that mandate proportional hedging. Explain and give an example of how proportional hedging can be implemented. Explain why foreign currency cash balances do not cause transaction exposure. What is hyperinflation, and what are the consequences for translating foreign financial statements? a. Explain how matching currency cash flows can offset operating exposure. b. Give an example of matching currency cash flows.
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