1. First, you decide to review basic exchange rate terminology.
a. Describe fixed and floating exchange rate 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 political risk 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 exchange rate risk. As such, you decide that you need to become fluent in the following topics.