MEASURING AND MANAGING TRANSACTION FOREIGN EXCHANGE EXPOSURE OF MULTINATIONAL COMPANYDr Nermina Pobrić |
Number 9 |
ABSTRACT
Corporations and institutional and individual investors are exposed to transaction foreign exchange risk if contract the transactions that require some cash inflows or cash outflows in the future. Therefore, transaction exposure of multinational company can be defined as the sensitivity of realized domestic currency values of the firm's contractual cash flows denominated in foreign currencies to exchange rate changes. If transaction exposure exists, the firm faces three major tasks. First, it must identify its degree of transaction exposure. Second, it must decide whether and to which degree to hedge this exposure. Finally, if it decides to hedge part or all of the exposure, it must choose among the various hedging techniques available. In this article author offered a possible solutions to this tasks in order to measuring and managing transaction exposure make easier.
Keywords: foreign exchange risk, transaction foreign exchange exposure, measurement of transaction exposure, hedging of transaction exposure.