Management ofEconomic ExposureChapter Seven
ChapterObjectives:This chapter provides a way to measureeconomicexposure, discusses itsdeterminants, and presents methods formanaging and hedging economicexposure
❖Chapter Objectives: ❖This chapter provides a way to measure economic exposure, discusses its determinants, and presents methods for managing and hedging economic exposure
ChapterOutlineHow to Measure Economic ExposureDeterminants of Operating ExposureManagingOperating Exposure
Chapter Outline ❖How to Measure Economic Exposure ❖Determinants of Operating Exposure ❖Managing Operating Exposure
WhatisEconomicExposure?Economic Exposure can be defined asthe extent to which the value of the firmwould be affected by unanticipatedchanges inexchangerates
What is Economic Exposure? Economic Exposure can be defined as the extent to which the value of the firm would be affected by unanticipated changes in exchange rates
ChannelsofEconomicExposureChanges inexchangeratescanhaveaneffect on firm's assets and liabilities and thuson its value. (asset exposure)Changes in exchange rates can have aprofound effect on firm's competitive positionin the world market and thus on its cash flowsand market value. (Operating exposure)
Channels of Economic Exposure ❖Changes in exchange rates can have an effect on firm’s assets and liabilities and thus on its value. (asset exposure) ❖Changes in exchange rates can have a profound effect on firm’s competitive position in the world market and thus on its cash flows and market value. (Operating exposure)