Foreign
Exchange
(aka Fx)
In
Foreign Exchange ,
the Base Currency is the "Home"
currency
.
For example , Ireland's base currency is the Euro
Operating outside of the base currency means getting exposed to
foreign exchange risk namely ,
:
↳ Transaction Risk
↳ Translation Risk
↳ Economic Risk
Transaction Risk
This is transaction in a foreign currency at one
the risk that a
exchange rate is settled at a another rate (because the rate has
changed The risk that the Financial manager might try to (main
&
'manage
international transactions towards a more beneficial deal
focus of this subject)
Translation (or Accounting) Risk
↑ his relates to the
exchanges profits or losses that result from
converting foreign currency balances for the purpose of
preparing
the accounts
.
These are book entries as opposed to actual cash flows .
Economic Risk
This refers to the
change in the present value of future cash
flows due to unexpected movements in rates Foreign exchange
(e g
. raw material imports increasing in cost).
More risk thus associated with
unstable
in economies , being
poorer countries
.
Spot Rate is the current rate of
exchange (daily) .
An example of what a
spot rate would look like is :
$) 1 . 50
$1 . 52
Sell Buy
One is the
buy one is the sell rate
S BuyHiga
,
perspective
Rule !!! Use the Bank's point of view ,
"Bank
always
Wins
Exchange
(aka Fx)
In
Foreign Exchange ,
the Base Currency is the "Home"
currency
.
For example , Ireland's base currency is the Euro
Operating outside of the base currency means getting exposed to
foreign exchange risk namely ,
:
↳ Transaction Risk
↳ Translation Risk
↳ Economic Risk
Transaction Risk
This is transaction in a foreign currency at one
the risk that a
exchange rate is settled at a another rate (because the rate has
changed The risk that the Financial manager might try to (main
&
'manage
international transactions towards a more beneficial deal
focus of this subject)
Translation (or Accounting) Risk
↑ his relates to the
exchanges profits or losses that result from
converting foreign currency balances for the purpose of
preparing
the accounts
.
These are book entries as opposed to actual cash flows .
Economic Risk
This refers to the
change in the present value of future cash
flows due to unexpected movements in rates Foreign exchange
(e g
. raw material imports increasing in cost).
More risk thus associated with
unstable
in economies , being
poorer countries
.
Spot Rate is the current rate of
exchange (daily) .
An example of what a
spot rate would look like is :
$) 1 . 50
$1 . 52
Sell Buy
One is the
buy one is the sell rate
S BuyHiga
,
perspective
Rule !!! Use the Bank's point of view ,
"Bank
always
Wins
