《國際金融學》經(jīng)典學習課件-(11)

1、Chapter 10Transaction ExposureTransaction ExposureForeign exchange exposure is a measure of the potential for a firms profitability, net cash flow, and market value to change because of a change in exchange rates.An important task of the financial manager is to measure foreign exchange exposure and

2、to manage it so as to maximize the profitability, net cash flow, and market value of the firm.The effect on a firm when foreign exchange rates change can be measured in several ways.Exhibit 10.1 shows schematically the three main types of foreign exchange exposure: transaction, translation, and oper

3、ating.0Exhibit 10.1 Corporate Foreign Exchange ExposureTypes of Foreign Exchange ExposureTransaction exposure measures changes in the value of outstanding financial obligations incurred prior to a change in exchange rates but not due to be settled until after the exchange rates change.Thus, this typ

4、e of exposure deals with changes in cash flows the result from existing contractual obligations.0Types of Foreign Exchange ExposureOperating exposure, also called economic exposure, competitive exposure, or strategic exposure, measures the change in the present value of the firm resulting from any c

5、hange in future operating cash flows of the firm caused by an unexpected change in exchange rates.0Types of Foreign Exchange ExposureTransaction exposure and operating exposure exist because of unexpected changes in future cash flows. The difference between the two is that transaction exposure is co

6、ncerned with future cash flows already contracted for, while operating exposure focuses on expected (not yet contracted for) future cash flows that might change because a change in exchange rates has altered international competitiveness.0Types of Foreign Exchange ExposureTranslation exposure, also

7、called accounting exposure, is the potential for accounting-derived changes in owners equity to occur because of the need to “translate” foreign currency financial statements of foreign subsidiaries into a single reporting currency to prepare worldwide consolidated financial statements.0Why Hedge?MN

8、Es possess a multitude of cash flows that are sensitive to changes in exchange rates, interest rates, and commodity prices.These three financial price risks are the subject of the growing field of financial risk management.Many firms attempt to manage their currency exposures through hedging.0Why He

9、dge?Hedging is the taking of a position, acquiring either a cash flow, an asset, or a contract (including a forward contract) that will rise (fall) in value and offset a fall (rise) in the value of an existing position.While hedging can protect the owner of an asset from a loss, it also eliminates a

10、ny gain from an increase in the value of the asset hedged against.0Why Hedge?The value of a firm, according to financial theory, is the net present value of all expected future cash flows.The fact that these cash flows are expected emphasizes that nothing about the future is certain.Currency risk is

11、 defined roughly as the variance in expected cash flows arising from unexpected exchange rate changes.A firm that hedges these exposures reduces some of the variance in the value of its future expected cash flows.Exhibit 10.2 illustrates the distribution of expected net cash flows of the individual

12、firm.0Exhibit 10.2 Hedgings Impact on the Expected Cash Flows of the FirmWhy Hedge?However, is a reduction in the variability of cash flows sufficient reason for currency risk management? Opponents of hedging state (among other things):Shareholders are much more capable of diversifying currency risk

13、 than the management of the firmCurrency risk management does not increase the expected cash flows of the firmManagement often conducts hedging activities that benefit management at the expense of the shareholders (agency conflict)Managers cannot outguess the market0Why Hedge?Proponents of hedging c

14、ite:Reduction in risk in future cash flows improves the planning capability of the firmReduction of risk in future cash flows reduces the likelihood that the firms cash flows will fall below a necessary minimum (the point of financial distress)Management has a comparative advantage over the individu

15、al shareholder in knowing the actual currency risk of the firmManagement is in better position to take advantage of disequilibrium conditions in the market0Measurement of Transaction ExposureTransaction exposure measures gains or losses that arise from the settlement of existing financial obligation

16、s whose terms are stated in a foreign currency.The most common example of transaction exposure arises when a firm has a receivable or payable denominated in a foreign currency. Exhibit 10.3 demonstrates how this exposure comes about.0Exhibit 10.3 The Life Span of Transaction ExposureMeasurement of T

17、ransaction ExposureForeign exchange transaction exposure can be managed by contractual, operating, and financial hedges.The main contractual hedges employ the forward, money, futures, and options markets.Operating and financial hedges employ the use of risk-sharing agreements, leads and lags in paym

18、ent terms, swaps, and other strategies.0Measurement of Transaction ExposureThe term natural hedge refers to an off-setting operating cash flow, a payable arising from the conduct of business.A financial hedge refers to either an off-setting debt obligation (such as a loan) or some type of financial

19、derivative such as an interest rate swap.Care should be taken to distinguish operating hedges from financing hedges.0Tridents Transaction ExposureWith reference to Tridents Transaction Exposure, the CFO, Maria Gonzalez, has four alternatives:Remain unhedged;hedge in the forward market;hedge in the m

20、oney market; orhedge in the options market.These choices apply to an account receivable and/or an account payable.See Exhibit 10.40Exhibit 10.4 Tridents Transaction ExposureTridents Transaction ExposureA forward hedge involves a forward (or futures) contract and a source of funds to fulfill the cont

21、ract.In some situations, funds to fulfill the forward exchange contract are not already available or due to be received later, but must be purchased in the spot market at some future date.This type of hedge is “open” or “uncovered” and involves considerable risk because the hedge must take a chance

22、on the uncertain future spot rate to fulfill the forward contract.The purchase of such funds at a later date is referred to as covering.0Tridents Transaction ExposureA money market hedge also involves a contract and a source of funds to fulfill that contract.In this instance, the contract is a loan

23、agreement.The firm seeking the money market hedge borrows in one currency and exchanges the proceeds for another currency.Funds to fulfill the contract to repay the loan may be generated from business operations, in which case the money market hedge is covered.Alternatively, funds to repay the loan

24、may be purchased in the foreign exchange spot market when the loan matures (uncovered or open money market hedge).0Tridents Transaction ExposureHedging with options allows for participation in any upside potential associated with the position while limiting downside risk.The choice of option strike

25、prices is a very important aspect of utilizing options as option premiums, and payoff patterns will differ accordingly.Exhibit 10.5 shows the value of Tridents 1,000,000 account receivable over a range of possible ending spot exchange rates and hedging alternatives.Exhibit 10.6 shows alternatives fo

26、r an account payable0Exhibit 10.5 Valuation of Cash Flows Under Hedging Alternatives for Trident with OptionExhibit 10.6 Valuation of Hedging Alternatives for an Account PayableRisk Management in PracticeThe treasury function of most private firms, the group typically responsible for transaction exp

27、osure management, is usually considered a cost center.The treasury function is not expected to add profit to the firms bottom line.Currency risk managers are expected to err on the conservative side when managing the firms money.0Risk Management in PracticeFirms must decide which exposures to hedge:

28、Many firms do not allow the hedging of quotation exposure or backlog exposure as a matter of policyMany firms feel that until the transaction exists on the accounting books of the firm, the probability of the exposure actually occurring is considered to be less than 100%An increasing number of firms, however, are active