COMMERCE 4SA3 Lecture Notes - Lecture 5: Foreign Exchange Market, Financial Risk Management, Renminbi

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 4SA3
• Professor: Linda Stockton

Document Summary

Financial aspects of the international environment currency and capital markets. Transaction and economic exposure: transaction exposure extent to which income from individual transaction is affected by fluctuations in foreign exchange values. Protection: hedging, perfect hedge ze(cid:396)o cha(cid:374)ge to fi(cid:396)(cid:373)"s fi(cid:374)a(cid:374)cial positio(cid:374, natural hedge not entering a financial contract using local bank loans. When they pay you just pay the bank back. Unrealized gains and losses: economic exposure e(cid:454)te(cid:374)t to which a fi(cid:396)(cid:373)"s futu(cid:396)e i(cid:374)te(cid:396)(cid:374)atio(cid:374)al ea(cid:396)(cid:374)i(cid:374)g power is affected by changes in exchange rates. Concerned with long-run effect of exchange rate changes on individual transactions most of which are short-term affairs that will be executed with few weeks or months. Currency restriction policies: multiple exchange rate system. Import deposit requirement: quantity restrictions, countertrade barter like agreements g & s exchanged for g & s. characterized by linkage of exports and imports in addition to money. product + (cid:373)o(cid:374)e(cid:455) fo(cid:396) p(cid:396)oduct.