lecture 7 Understanding Exchange Rate Risks and Hedging Techniques

A collection of flashcards summarizing key concepts related to exchange rate risks and management techniques discussed in the lecture.

What is the risk of money values changing?

It is when you might lose money because currency prices go up or down.

What are two ways to check money in other countries?

The home money way and the foreign money way.

What is the risk when buying or selling in different money?

It is the danger that money prices change while you are doing a trade.

When does this buying and selling risk happen?

It happens when you might gain or lose money during a business deal.

What is the risk to the whole company's value?

It is the danger that price changes will hurt the total value of the business.

How is company value risk different from selling risk?

Value risk looks at all future money, not just one single trade.

What is the risk when making money reports?

It is the risk from changing foreign money totals into your own money for reports.

What are the three main currency risks?

Selling risk, company value risk, and report risk.

How can we fix the buying and selling risk?

By using money tools or special plans inside the company.

What is a plan to not lose money from currency changes?

It is called hedging.

What is safe planning inside the company?

It is managing risk using your own rules without buying extra bank tools.

What is changing the time of payments called?

It is called leading (paying early) and lagging (paying late).

What is asking for payment in your own money?

It is a way to avoid the risk of other currencies changing.

What is canceling out what you owe and what you get?

It is called netting, which helps reduce the amount of money at risk.

What are deals to lock in a price for later?

These are forward contracts that fix the price today for a future date.

What are standard deals to trade later?

These are futures contracts that are traded on a market.

What is using bank loans to stay safe?

It is called money market hedging.

What are tools that get value from other things?

They are called derivatives.

How do interest rates change money values?

Differences in interest rates between countries make money prices move.

What happens if your own money gets stronger?

Money from other countries becomes worth less to you.

What happens to sales if your money gets weaker?

It can make your sales inside your own country worth more.

Do future money plans change the company's value?

Yes, if the price of money changes, it changes what the company is worth.

Can other companies affect our money value?

Yes, competition from other countries can change prices and money flow.

What helps figure out what a company is worth today?

The discount rate is used to find the value of future money right now.

How does changing report money affect the final total?

It happens when you combine reports from offices in different countries.

What is the main problem with money reports?

It might not change actual cash, but it can look bad to people watching the company.

What are easy ways inside the company to stay safe?

Using your own money for bills, picking when to pay, and netting.

What can go wrong when trading different money?

You can lose money because the exchange rates keep changing.

Why should we guess what will happen to money?

Forecasting helps us prepare and plan for the future.

What happens when your money gets stronger for imports?

It can make the company worth less or have no big change.

How do companies check if their safety plan is working?

By seeing how much the company value changes when money prices move.

Why use special tools to stay safe?

To stop losing money when currency prices go the wrong way.

What must companies think about when planning inside?

They must think about the cost and if the other person will be unhappy.

What are the bad parts of using safety tools?

They cost money to use and you have to guess the future correctly.

How does overseas money change how a company borrows?

It changes how much risk the company has and how much it can borrow.

Why must big world companies know about money risk?

Because it decides if they make a profit and how strong they are.