MBA (General)IV – Semester, International Business Unit IV
Information for Exposure Management
Management of foreign exchange exposure is an integral part of the treasury function in the multinational company. Rational decision taking presupposes that relevant information pertinent to the decision is available. The generalization is no less true of treasury management than it is of any other aspect of business. To make logical decisions of foreign exchange exposure, relevant information is required.
Information for Exposure Management
Management of
foreign exchange exposure is an integral part of the treasury function in the multinational company. Rational decision taking
presupposes that relevant information pertinent to the decision is
available. The generalization is no less true of treasury management than it is of any other aspect of business.
To make logical decisions of foreign exchange
exposure, relevant information is required.
What kind of information? Transaction exposure, translation exposure
and Economic exposure, Macro economic exposure. Macro economic exposure is
concerned with how a firm’s cash flows, profits and hence value change as a result of developments in the economic environment which includes, exchange rate,
interest rate, inflation rate, wage
level, commodity price levels and other shocks to the system. The analysis of
macro economic exposure is very much the leading edge of hedging
techniques.
We have
classified foreign exchange exposure under their headings; transaction, translation and economic exposure. This
contrasts with pure translation exposure where
difference arises due
to accounting conventions in the process of consolidating the financial accounts of companies within
a group.
