intro Flashcards
1
Q
How to manage short term exposure to currency risk?
A
- forwards or futures
- options
- swaps
- second-generation derivatives
2
Q
How to manage long term exposure to currency risk?
A
Know well:
- suppliers
- customers
- country of production
3
Q
Advantages of going global
A
- specialization (exploit comp adv)
- better allocation of capital ( reduced cost of cap, more good projects undertaken)
- Portfolio diversification (less portfolio risk, increased risk adjusted return)
4
Q
What exchange rate risk impacts
A
- revenues
- costs
- profits
5
Q
Country risks come from
A
- legal barriers
- transaction costs
- quotas and tariffs
- potential for property nationalization
6
Q
Worldwide risk associated to
A
- financial speculation
- housing bubbles
- home currency vulnerability
7
Q
excessive sectoral concentration leads to
A
-drop in production
- loss of human capital
8
Q
describe the ideal currency
A
-low exchange rate volatility
- is convertible
- supports independent monetary policy
- serves as a medium of exchange for other currencies and can even substitute them
- can be used as intervention currency
9
Q
Anglo american and european/japanase (continental) approach to firm management
A
American is to maximize shareholder wealth while continental is to maximize corporate wealth
