Foreign exchange risk or exchange rate risk is a financial risk that occurs when a financial deal is denominated in a currency other than that of the base currency of the company. Explain the following types of risks that international firms are exposed to: a. Transaction risk b. Translation risk c. Economic risk

Foreign exchange risk or exchange rate risk is a financial risk that occurs when a financial deal is denominated in a currency other than that of the base currency of the company. Explain the following types of risks that international firms are exposed to: a. Transaction risk b. Translation risk c. Economic risk

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter20: Short-term Financing

Section: Chapter Questions

Problem 2QA

See similar textbooks

Similar questions

Which foreign exchange risk relates to the value of assets held in foreign currency on the statement of financial position of financial institutions which trades? a. Economic risk b. Transaction type risk c. Currency risk d. Translation risk
The deterioration of economic conditions; deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks; market crisis are examples of what kinds of risk? Select one: a. Solvency risk b. Foreign exchange risk c. Sovereign risk d. Credit risk
Companies that compete in an international marketplace may be faced with three types of risk owing to foreign exchange.These are: * A. specific, translation and transaction risk. B. translation, transaction and economic risk. C. accounting, transaction and translation risk. D. accounting, specific and transaction risk.
A foreign currency loan is a typical example for O a. Currency Risk O b. Interest rate risk O c. Translation Exposure O d. Transaction Exposure
What type of banking risk includes deterioration of the value of the local currency in terms of the bank’s base currency; convertibility or transfer risks. a. Credit Risk b. Liquidity Risk c. Foreign Exchange Risk d. Interest Rate Risk
Which of the following is the risk due to exchange rates? Business risk Financial risk Market risk Interest rate risk Purchasing power risk Exchange rate risk
Foreign exchange risk may be best defined as:a. the chance of value change in foreign exchange ratesb. the chance that the demand for your currency will dropc. the chance that exchange rates will be fixedd. the political risk posed by foreign governments
Foreign exchange risks a. Occur when cash flows are affected by currency exchange rates b. May be managed with forwards contracts c. May be managed with futures contracts d. Both a) and b) e. Both a) and c)
What term is used to describe the process of reducing foreign exchange risk? Choose the correct. A)international accounting B)exposure C)hedging D)harmonization
If the value of contractual transactions is affected by exchange rate fluctuations, most likely the firm has the ______ exposure. A. economic B. country risk C. transaction D. translation
What causes balance sheet (or translation) exposure to foreign exchange risk? How does balance sheet exposure compare with transaction exposure?
A bank engaged in the foreign currency business is normally exposed to currency risk, but will also be exposed to these additional risks except: a. Liquidity risk b. Market risk c. Credit risk d. Interest rate risk