Share
Explore BrainMass

Forex, Global corporations, risks

I need the following answered in simple layman's terms. I do need thurough answers with links to specifics when available. Thanks in advance for your efforts.

1: How do global companies protect themselves against foreign exchange risk and other financial risks?

2: How do U.S. multinational organizations finance their global operations?

3: What is the function of the foreign exchange market? Who are the market participants?

4: Why is it important for a global business to conduct a risk analysis? In a country risk analysis, which factors carry more weight than others? Does this hold true for all countries?

Solution Preview

How do global companies protect themselves against foreign exchange risk and other financial risks?

Global companies protect themselves against foreign exchange risks arising due to fluctuations in exchange rates by using various hedging mechanisms avaiable in the financial markets such as currency futures, interest rate swaps, call and put options and forward contracts. These tools act as an insurance on the exchange rates and can be obtained by spending reasonable amounts. The downside of risk is limited when such instruments are used by the companies.

Other financial risks such as credit risks can be mitigated by conducting a thorough credit review and background check of the the other parties iinvolved in foreign transactions. Similarly, risks arising due to changes in government policies, economic and political changes, changes in export-import and repatriation laws of the countries in question, etc. can be mitigated or avoided by conducting thorough analysis and study and consultation with exzperienced professionals before entering into an international transaction and business.

How do U.S. multinational organizations finance their global operations? ...

Solution Summary

Forex, Global corporations, risks

$2.19