The exchange rate risks and the factors that managers should consider - Free Essay Example

Sample details Pages: 8 Words: 2472 Downloads: 5 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Exchange rate risk is one of the most important factors managers should consider while dealing in outside the country in foreign currency. To reduce the volatility in future cash flows and to protect from losses due to change in currency rates stimulates the firm to go for a hedging strategy to cater currency risk problem. Billing in home currency, Forwards, Futures, Options and hedging through money markets are the potential strategies firm can adopt to hedge their currency risk. Don’t waste time! Our writers will create an original "The exchange rate risks and the factors that managers should consider" essay for you Create order Giving right to purchase or sale not the obligation, paying premium at the time of contract and to some extent the flexibility in exercising the contract are the potential factors that discriminate Currency forward options with currency forward fixed contracts. The right to buy or sale allows the firm to minimize the risk and maximize the profits as compared to option contract at the cost of premium paid at the time of contract. In the case of firm it was found that the selecting forward contract is the best hedging strategy as company can get maximum proceeds in dollars from this strategy as compared to billing in US dollars or money market hedge. Company can earn 33306022.4 dollars from forward contract which is 744399.5 dollars more than billing in US dollar strategy and 342602.6 dollars more than money market strategy. 1. Introduction: Today this is a world of globalization where firms are broadening their activities across the boundaries and not restricted themselves for local operations only. Access to new markets, raw materials, new technology, to seek production efficiency, diversification and to avoid political and regulatory risks are the potential factors that stimulate the firms to go global (Brigham and Houston, 2008:747). While dealing in across the border a number of factors like exchange rate risk, political risk, regulatory risk, cultural and language differences can affect the decision making of managers. Exchange rate risk is one of the most important factors in this respect. Exchange rate is the specified units of a given currency that are equal to the one unit of another currency. So whenever international financial managers are dealing in foreign currency instead of their local currency, an analysis of exchange rate risk should make to assess the real value of transaction. 2. Why hedging Exchange Rate risk: Exchange rate risk management becomes more critical for the firms dealing in import and export where change in currency rate can lead to a volatile cash flow. It was Adler and Dumas who have explain the exchange rate exposure phenomena as the volatility in cash flows because of unexpected increase or decrease in foreign exchange rate (1984). As a key source of uncertainty for companies exchange rates evidenced a volatility of ten times of inflation rate and four times of interest rate all over the world (Jorion, 1990). Froot et al. have found that volatility in the cash flows due to change in exchange rates can lead to a shortage of finance and as a result direct the company for costly external financing (1993). Though researchers found a small economical and significant effect between firmacirc;â‚ ¬Ã¢â€ž ¢s value and the change in exchange risk (Griffin and Stutz, 2001) but still it increases opportunity cost and the uncertainty about the future cash flows. So hedging exchan ge rate risk is very important to avoid this uncertainty of losses. As the firm is expecting to receive 500 million Mexican pesos in next 6 months while those Pesos will be used in home country. So after receiving those pesos they have to convert into dollars to use in US. Today if company receives those 500 Poses and converted it on spot bid rate (rate at which you can buy Dollars in exchange of other specified currency at the spot) then firm will receive 500000000 / 15.3555 = 32561622.9 dollars. But firm will get these Pesos in next 6 month and what will happen if the spot bid rate does change? Now suppose if the Mexican Pesos depreciated after 6 month and spot bid rate changes from 15.3555 to 15.5 Poses/Dollar and firm converted those Poses into Dollar then the firm will receive 500000000 / 15.5 = 32258064.5 Dollars which is 303558.4 (32561622.9 32258064.5 = 303558.4) less than today amount of Dollars if converted. So it is very important to manage this risk arises due to change in exchange rate and hedging exchange rate risk to avoid future cash flow volatility. 3. Techniques of hedging Exchange Rate risk: Above illustration shows the importance of hedging exchange rate risk especially when foreign currency is expected to appreciate for an importer or depreciation in foreign currency for an exporter while payments or receipts are made in foreign currency. Firms use derivative instruments to hedge their exchange rate risk and to avoid the volatility in their cash flows all over the world (Froot et al., 1993). Following are techniques to hedge exchange rate in this respect. 3.1 Billing in home currency: While dealing in foreign exchange currencies in their operations one can deal in three different currencies Home Currency Counter partyacirc;â‚ ¬Ã¢â€ž ¢s home currency Third country currency Dealing with home currency transaction is the easiest way to hedge the currency risk as whenever the payment is paid you will receive in home currency and no need to convert it with other currency that can lead to volatile cash flows, but this holds true if home currency is stronger and expected to appreciate with respect to that currency (Grath, 2008:98). While if foreign currency is expected to appreciate i.e. forward rate is less than spot rate then you can hedge yourself through forward contracts with more returns. 3.2 Currency Forwards: It is an obligatory sale or purchase agreement of a specified number of units of a currency with a specified exchange rate in replace of another currency at a future date. The agreed rate can be different from spot rate but it did not assure that on that future date spot price of that currency will be same as this forward rate. This forward rate is been determined according to interest rates and to market situation plus bank commission (Grath, 2008:98). These are over the counter contracts and time period of the transaction should be more than 2 days after transaction and in the foreign exchange market nearly 10 percent of all transactions are forward contracts (Homaifar, 2004:41). It is an obligation on both the parties and at the maturity of contract one party has to sale and other has to purchase that specified numbers of units at that agreed price. In these contracts one can hedge his exchange rate risk by transferring it to the counter party. Currency forward contracts allows a firm to hedge its exchange rate risk by locking the price to be paid against foreign currency as the value of that currency may appreciate over time (Madura, 2006). For example as firm is expected to receive 500 million Pesos whose spot rate is 15.3555 and we made a 6 month forward contract whose rate is 15.0123 and hedge our risk. Now whatever the spot price will be after 6 months bank is obligatory to exchange those Pesos at 15.0123 exchange rates and risk has been transferred to bank. If the spot rate at that time is more than forward rate then bank will enjoy premium and if the exchange rate falls than forward rate than risk bank will bear losses. Though currency rate risk is been catered in forwards with customized options but as these are over the counter contracts usually made by bank, so the risk of default of that bank is associated and on the other hand liquidity before maturity of these contracts are also been an issue to be considered. 3.3 Futures Contract Having all features of forward contracts but standardized features along with trading in exchange makes it different from forwards. As Futures are traded on exchange, so the risk of default is guaranteed by that exchange. Unlike forwards these are standardized contracts where you just have to choose your contract. 3.4 Currency Options: These are the contracts in which the buyer of option has the right, but not the compulsion to sale or buy a specified number of units of a currency at a agreed rate during some future date (Grath, 2008:101). Unlike forward or futures it did not create obligations to the party to execute the contract but it provides the right to the option holder whether to execute the contract or not at the time of maturity. A call option provides to its owner the right to purchase while a put option gives the right to sell a specified number of foreign currency in exchange of home currency at a particular price (also called strike price), on or before some specified expiration date (Marcus, 2004:656). Option holder has to pay some premium at the time of contract but at the withdrawal option holder will loss that premium. Both options at over the counter and tradable options are available. Suppose you buy a put option to sell 5oo million Mexican Poses after 6 month with a premium of $1000 at the ra te of 15.2 Poses / Dollar and today spot price is 15.3555 Poses / Dollar. Now after 6 months total value of option will be $32893736.8 (500000000 / 15.2 $1000). You will exercise the put option if the spot rate at that time will be at least 15.2004 poses / dollars (500000000 / 32893736.8) as at this level there is no profit and no loss. So decrease in spot rate at that time from this level will increase the profitability in dollars while any increase from this level will lead to withdraw from option as it will increase the loss. 3.5 Hedging through Money Market: It is a process by which one can borrow and deposits different currencies in different countries having different interest rates to eliminate the currency risk. Here the logic is different interest rates in different countries and we try to cater our currency risk through those interest rate differentials. 4. Calculations of three chosen approaches: Bid Rate Ask Rate Spot rate (Peso/USD) 15.3555 15.3561 Six months forward (Peso/USD) 15.0123 15.0134 Six months interest rates U.S Mexico Deposit 3.1% p.a. 1.6% p.a. Borrowing 5.1% p.a. 2.6% p.a. 4.1 Billing in US Dollars: As firm is expecting 500 million Mexican poses in next 6 months. Now if firm contracted with its customer to pay in US dollars then today he will fix dollar amount to be paid after 6 months according to current spot rate as given. Dollars to be paid = 500000000 / 15.3555 = 32561622.9 US Dollars Now after 6 months company will receive 32561622.9 dollars from its customer and company has hedged himself to this amount of dollars. Now whatever the exchange rate will be after 6 months company will receive 32561622.9 dollars. 4.2 Currency Forward Contract: Another option that can be used to hedge currency risk is forward contract. After entering a six month forward contract company can lock the exchange price of 15.0123 poses per dollar. Now whatever the price will be after 6 month company can exchange those 500 million poses into dollars at 15.0123 poses per dollar. So after 6 month company will receive following amounts. Receipts from customers = 500000000 poses Covert to Dollar at Forward rate = 500000000 / 15.0123 = 33306022.4 Dollars So after entering forward contract company has locked the conversion price at 15.0123 and can convert those 500 million poses into 33306022.4 Dollars after 6 months. 4.3 Money Market Hedge: Company can also go for a money market hedge where firm can borrow from Mexican money market for 6 months against some interest rate to be paid and convert this amount into Dollars. Then deposit this amount in home country money market for 6 months for some interest. When receive those 500 million poses from its customer, return the loan borrowed from Mexican money market and also receive money deposited in home country money market with interest. This all process is completed in following way Step 1 Borrow required Poses from Mexican market = 500000000 / [1 + (0.026 * 6/12)] = 500000000 / 1.013 = 493583416 poses Step 2 Covert these Poses into Dollars at current spot rate = 493583416 / 15.3555 = 32143754.1 Dollars Step 3 Deposit these Dollars into home money market at 5.1% p.a. Step 4 Now after 6 months firmacirc;â‚ ¬Ã¢â€ž ¢s repayment of loan (Principle + interest) from Mexican market becomes due Amount due to Mexican money market = Principle + Interest = 493583416 + 6416584 = 500000000 Poses Company will repay its 500000000 Poses loan after receiving from its customer. Company also will receive his deposited 32143754.1 Dollars along with 5.1% p.a. interest rate. Amount Receive from Home money market = Principle + Interest = 32143754.1 + (32143754.1 * 0.051 * 6/12) = 32143754.1 + 819665.73 = 32963419.8 Dollars So after 6 months company will receive a total of 32963419.8 Dollars. 4.4 Recommended approach: Company should go for forward contract to hedge its currency rate risk as company will receive maximum amount of dollars after 6 month in this approach. If company goes for billing in US dollars then it will receive 32561622.9 dollars which is not a good option as the forward rate is less than spot rate and company can gain 33306022.4 Dollars through forward contract even more than the proceeds will receive from money market hedge approach. In exercising the forward contract company can hedge his currency risk and also will earn 744399.5 (33306022.4 32561622.9) dollars more than billing n US dollar option and 342602.6 (33306022.4 32963419.8) more than the money market option. 5. Forward exchange fixed V/S forward exchange option contracts: Following are the critical features that distinguish these two Forward exchange fixed and forward exchange option contracts. 5.1 Option but not obligation: The main feature that differentiate forward option contract with forward fixed contract is the right to execute the contract and not the obligation. In option contract option holder can cancel the contracts while loosing his premium amount (Grath, 2008:101). This feature of option provides option holder more flexible risk management as he can cancel the deal if observing low proceeds of amount and also can got high profits if the exchange spot rate increases as compared to strike price (option exchange rate). While in forward you make a 100% hedge and lack at one price. 5.2 Premium: No premium is required to enter in a forward contract while for a forward option contract premium is required which act as insurance premium determined and varying according to interest rate level, market condition, time period of contract and expected fluctuations in currency Grath, 2008:102). This feature of options can make it costly as compared to forwards. But on the other hand it can also provide an opportunity for high profits. Unlike options there is no such premium required to enter in a forward contract but a little margin or commission. 5.3 Trading: Forwards are available in over the counter market while options can be accessed through both traditional and over the counter market. So both tailor made and standardized option contracts are available. 5.4 Exercise Time: As it is very difficult for an importer to figure out the exact time of payment or proceeds will receive in foreign currency, so option contract also can provide this kind of flexibility. For example if today (1 April) you but an option for 6 months at a strike rate of 15.43 Poses / Dollars and in agreement it is given that you can exercise this agreement from 1st September to 30th September. Now you have more flexibility in exercising the contract according to your need during the month of September. But in the case of forward contract you fix a future date and the contract will be exercised on that particular date.

Personal Reflection On Emotional Intelligence - 1640 Words

[Type text] [Type text] [Type text] Rodha Albaker INM407 Reflective Essay Emotional Intelligence- Personal Reflection Introduction and Definition of EI The topic of our group presentation was Emotional Intelligence (EI), a term that refers to the convergence of emotion and intelligence; that is, the ability to recognise one s own emotions and the emotions of others. According to Mayer and Geher (1996). There are physical cues (such as facial expressions and posture) that are universally-accepted as universally representative of emotions, and thus, and inability to recognise emotions plays a role in hindering self-awareness and self-insight. Once one is able to recognise emotions in him/herself and others, he or she can use this knowledge to regulate one s own emotions and motivate, plan, and achieve life goals. EI plays an important role within management and leadership, particularly when it comes to maintaining job satisfaction among employees (Shooshtarian, Ameli and Aminilari, 2013). This is particularly important as employees who report high levels of job satisfaction are also shown to perform better in their professional du ties (Ferris et al., 2010). Personal Goals and EI I strive to be a good leader and reach the fullest of my potential; and through learning to understand both my own emotions and the emotions of others, I can convey the empathy required to connect with other people and work towards greater goals. 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Breast Implants Essay Research Paper Theresa Ann free essay sample

Breast Implants Essay, Research Paper Theresa Ann Vasquez Mr. P. Landino English 106 22. January 2001 Breast Implants Why would a adult female acquire breast implants? Is it needed or wanted? In some might state that they are? needed? for adult females who need rehabilitative surgery due to breast malignant neoplastic disease. Others might state that they? desire? the implants to do them experience better or look better, which comes from low self-pride. Whatever your grounds are, evidently we all agree that the determination is of a really personal nature. A determination that poses a serious menace because of the possible hazards involved. There are many unwellness and upsets you can see. Breast Implants have been around since the 1960? s. Dow Corning was a well-known maker of the one time silicone filled implants. In 1992, FDA ruled that they be taken off the market. There were so many complications that in 1994, if you had a rupture of your silicone implants you were denied wellness insurance ( internet-connect ) . We will write a custom essay sample on Breast Implants Essay Research Paper Theresa Ann or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page Since so saline implants have taken over but the possible unwellnesss and complications are still present. As Dr. David Feigal, manager of the FDA? s Center for Devices A ; Radiological Health ( onhealth.webmd ) explains, ? adult females should understand that chest implants do non last a life-time? . In fact, extra surgery may be needed because they tend to deteriorate over clip. Twenty per centum of the adult females needed extra surgery after merely three old ages. Womans who use implants for rehabilitative grounds are more likely to necessitate those extra surgeries than person who merely did it to hold bigger chests. The sarcasm of this point is, implants interfere with mammograms doing it hard to do accurate readings of a potentially cancerous ball. The technicians must be reminded that you have implants or else there is besides the hazard of rupture from the trial itself. The attractive forces for most adult females who want implants are really few but strongly motivative and persuasive. First there is the monetary value. You can anticipate to pay anyplace from $ 4,500 or more ( onhealth ) . Second, there is the recovery clip. Most adult females go home the same twenty-four hours and are back to work in a hebdomad. In a short period clip of merely five hebdomads the puffiness goes down plenty to see your accurate dimensions. Third, the scarring is minimum. At first the scratch is ruddy and chunky but so fades into thin white lines that are barely noticeable ( onhealth ) . We even use silicone for other implants such as unreal bosom valves, unreal articulations, and Norplant preventives. Merely point is those implants wear? t rupture or leak into your organic structure and cause you to experience badly. If they did they would hold stopped doing them a long clip ago and turned to medical devices that didn? T contain silicone. Womans tend to allow the undermentioned information go in one ear and out the other. Implants may travel from their original place. Making them look uneven or unnatural. They may leak or deflate causing harm to the environing tissue doing it necessary for immediate remotion or replacing. If they become covered by thick panic tissue, they could do the chest to go difficult and excessively painful to touch. You may even see loss of nipple esthesis. You can hold dimpling and puckering at the implant site. These experiences are merely the beginning. There is now a new disease they call silicone toxicity and immune disfunction syndrome ( epcha ) . Scavenger cells called macrophages are picked up by silicone and carried through out the organic structure. This causes the oncoming of molecular harm called free group or oxidant hurt. What happens is the organic structure? s defence mechanisms turn on itself, doing an autoimmune reaction ( onhealth ) . It? s best described as a war within the organic structure that can do you weak and suffer from chronic weariness. You can besides endure harm to your articulations, tegument and internal variety meats. The frequences of these complications are really controversial, yet no 1 denies they occur. In decision, I propose these personal inquiries. Is it truly worth the hazard? Don? T we have adequate diseases and unwellnesss to worry about already without doing our organic structures suffer yet another? Life is full on personal determinations and some of them will impact your wellness. So, no affair what you decide to make see this. What you think will do you experience or look better may in fact make you look or feel worse. Get all the facts. Pay close attending to all the all right print and do your determination from at that place. Work Cited The Manufactures Covered Up.http: //www.internet-connect.com/implants/report The Breast Implant Story.16 April 1996.http: //onhealth.webmd.com/conditions Silicone Immune Toxicity Syndrome.1998*http: //www.ephca.com/sits.htm

Payroll Bereavement Policy

Question: Discuss about thePayrollfor Bereavement Policy. Answer: Key Factors of Bereavement According to my research there are few key factors which holds significant importance in the whole bereavement policy. There are various guides which does mention how much leave should be offered to the employees or under which circumstances those leave should be given. But according as the HRM of the floral company Ms. White must focus more on how to deal with the difficult conversations and handle them properly. Ms. White should keep in mind the grief the employee is going through and how it might impact the work. According to me the main aspects which Ms. White should consider are: Giving temporary or permanent change to the working schedule of the employees of our company. The employees going under this current phase should be referred for the programme of employee assistance. Considering the impact that this current phase have on the employees performance and attendance. Also Ms. White should look into the factor whether the employee is supporting any partner or spouse (Rhinehart and Feeney, 2016). Duties of HRM As the HRM whenever an employee or coworker informs you about their situation the first thing that they expect is sympathy along with support. As per as the policies of our company the employees does have to bring this matter to the knowledge of the HRM thus you does get to know about the situation. And as expected the workers does expect comfort and sympathy during this time of grief (Canada Revenue Agency, 2017). The HRM should well consult the situation with the other staffs of human resource as they are well up to date with the policies of bereavement time, the medical leave act. The matter should be tackled keeping in mind the benefits available from health insurance, disability applications, as well as life insurance (Canada Revenue Agency, 2017). Initiatives by Ms. White Various things may happen to the coworkers or employees of our company. They may get ill or face tough times which might be their cause or doe to a near or dear relative. The initiative that the company can do to support its employee are: collect funds for the struggling employee, passing a dish during wake or funeral dinner, sending flowers or doing the needful to the hospitals, homes or funerals, helping out with home cooked meals for the employees family or the family who needs daily visit to the hospital, or signing up group cards for the fellow coworker. But the main thing which might be kept in mind is that home or hospital should never be made without the prior consent of the employee who is in this grave situation (Rhinehart and Feeney, 2016). References Canada Revenue Agency. (2017).T4001 Employers' Guide. [online] Available at: https://www.cra-arc.gc.ca/E/pub/tg/t4001/README.html [Accessed 26 Feb. 2017]. Rhinehart, M. and Feeney, J. (2016). A bereavement policy for bereavement workers.Bereavement Care, 35(2), pp.52-55.