What new problems and factors are encountered in international as opposed to domestic financial management?© BrainMass Inc. brainmass.com June 3, 2020, 8:59 pm ad1c9bdddf
What new problems and factors are encountered in international as opposed to domestic financial management?
International financial must consider fluctuating exchange rates. The fluctuating values of currencies in terms of each other. The fluctuations create currency value risks. These may be categorized as (1) transaction exposure (2) translation exposure 3) economic exposure
It is the extent to which given exchanges rate change will change the value of foreign currency denominated transactions already entered into.
Measurement of Transaction Exposure
* Transaction exposure measures gains or losses that arise from the settlement of existing financial obligations, namely
o Purchasing or selling on credit goods or services when prices are stated in foreign currencies
o Borrowing or lending funds when repayment is to be made in a foreign currency
o Being a party to an unperformed forward contract and
o Otherwise acquiring assets or incurring liabilities denominated in foreign currencies
Translation (Accounting) exposure
The change in the value of a firm's foreign currency denominated accounts due to a change in exchange rates.
It measures how greatly a firm's present value of future cash flows is affected by unexpected exchange rate fluctuations.
Hence Exchange rate exposure may affect financing costs volatile cash flow from exchange rate changes increases risk. Transaction exposure reflects the exposure of an MNC's future cash transactions to exchange rate movements ...
Almost 1000 words explain new problems and factors in international management that domestic doesn't encounter.