Question

Hi!

I would appreciate your help in these finance questions and I thank you in advance!

1. Which countries use: Fixed exchange rate system, free floating exchange system, managed floating exchange system, pegged exchange system (give multiple examples for each).

2. Which country dominates the exchange system.

3. IDENTIFY THE COUNTRY HAS THE MODEL FORECASTING TECHNIQUE

4. WHAT IS THE BEST TECHNIQUE FOR AN MNC TO USE IN HEDGING ACCOUNTS PAYABLE

5. WHAT ARE COMMON POLICIES FOR HEDGING TRANSACTION EXPOSURE

6. WHAT IS THE BEST HEDGING TECHNIQUE USED TO HEDGE ACCOUNTS RECEIVABLE

7. WHAT IS THE BEST HEDGE EXPOSURE TO PAYABLES- FORWARDS OR FUTURES

8. WHAT ARE THE METHODS OF USING DFI FOR REVENUE MOTIVES

9. WHAT ARE THE METHODS OF USING DFI FOR COST RELATED MOTIVES

10. IDENTIFY COUNTRY RISKS WHEN A FIRM PLANS TO GO GLOBAL, DO POLITICS ALSO HAVE AN IMPACT ON THE DECISION.

11. EXPLAIN HOW CURRENCY SWAPS AND PARALELL LOANS ARE USED TO HELP AN MNC DEAL WITH CURRENT AND LONG-TERM DEBT

12. WHY WOULD AN AMERICAN COMPANY ISSUE A DEBT BOND DENOMINATED IN A CURRENCY DIFFERENT FROM THE US DOLLAR TO FINANCE ITS FOREIGN LOCAL OPERATIONS

Answer 1

Answer(1): Countries that use:

Fixed exchange rate system- Bulgaria, Denmark, Hong kong, Iraq, Jordon, Nepal, Saudi Arabia, UAE

Free floating exchange system- USA, Japan, Australia etc.

Managed floating exchange system- Afganistan, Algeria, Colombia, India, Ghana, Egypt, Thailand, Malaysia, Indonesia, Peru, Singapore, Taiwan etc.

Pegged exchange system- Cuba, Panama, Bahrain etc.

Answer(2): Country that dominates the exchange system is USA. US dollar is most traded currency in the world, Most of the payments are denominated in the US dollar.

Answer(4): Best techniques for MNC to hedge Accounts payable are:

• Forward market- Forward contract are the types of derivatives that are used for hedging purpose. Companies can buy or sell the currency forward contracts as per their need.
• Currency rate swaps- it is the derivative contract in which two parties exchange the principal amount and interest in one currency for another currency.

Answer(5): Transaction exposure- It is the risk that countries face that do business globally. Transaction exposure risk can be reduced or minimized by these hedging techniques:

Forward market- Companies can lock in a favorable and fixed exchange rate in the future by entering into forward contracts. A currency forward contract is an agreement between two parties to exchange an amount of currency for another currency in the future at a fixed rate.

Currency swaps- Cash flows are exchanged in the different currencies.

Answer(6): Money market hedge is the best technique to hedge account receivables.

• First of all, Borrow the foreign currency in an amount that is equivalent to the present value of the receivables.
• Convert the foreign currency into domestic currency at the current spot rate.
• Put the domestic currency on deposit at the prevailing interest rate.
• At the time of foreign currency receivables, repay the foreign currency loan.