Write a paragraph on how MNCs could revise their bonus structure so that bonuses are not influenced by exchange rate movements. Alternatively, offer arguments to support leaving the bonus structure as it is

Q: d. Discuss whether Galina Works should avoid exchange rate risk by invoicing foreign customers in…

A: Foreign Exchange Risk: The risk of an abnormal loss or gain that accrues to a company on their…

Q: Why would a company prefer a foreign currency option over a forward contract in hedging a foreign…

A: Foreign currency options have an advantage over forward contracts in that the holder of the option…

Q: O a. If the Yen appreciates against the GBP, then the MNC will stand to make a loss on its GBP…

A: When home currency appreciate against the other currencies than less amount to paid in for foreign…

Q: Hedging translation exposure with forward contracts can backfire if the currency being hedged…

A: The answer and the explanation can be seen below:

Q: Explain, why appreciation of exchange rate (E) today results in the increase of expected return from…

A: The question is based on the concept of impact of change in exchange rate on net return in…

Q: Give a detailed explanation of whether the following statement is true or false Call-put parity…

A: A portfolio consisting of a long put option and a short call option should be equivalent to a…

Q: Due to ____, market forces should realign the relationship between the interest rate differential of…

A: Arbitrage means buying and selling the asset in order to profit from its price between markets.

Q: Which of the following statement is NOT true regarding the spot rate and forward rate? a. Forward…

A: Forward rate is the rate which will be available for exchange in future point in time. Spot rate is…

Q: how would market forces be affected? Does arbitrage opportunity destabilize foreign exchange…

A: Arbitrage is nothing but buying in one market with some price and selling the same with other market…

Q: why a organisation should consider hedging net payables or net receivables with currency options…

A: Answer: Hedging is nothing but an investment risk management strategy that reduces or controls the…

Q: A second function of the foreign exchange market is to provide exchange possibility that unpredicted…

A: Since you have not mentioned the specific question we will just answer the first question in case…

Q: Exchange rate fluctuations can be used as a tool of speculation by speculators. Make an example of…

A: Speculators who anticipate rising prices want to make a profit by buying futures contracts.…

Q: Does Arbitrage destabilize foreign exchange markets? Support your logic about that statement

A: Solution- F = S*1+if/1+id  F= Forward Exchange Rate  S= Current Spot Exchange Rate  Id= Interest…

Q: Would exchange rate changes always increase the risk of foreign investment

A: No, it is not necessary that the exchange rate changes always increse the risk of foriegn…

Q: Which of the following refers to exposure netting?  1. It is a strategy based on adjustments of the…

A: exposure netting is defined as a method of hedging transaction risk by offsetting exposure in one…

Q: One of the arguments for the irrelevance of exchange rate exposure management is that: O a.…

A: As per irrelevance of exchange rate exposure management is that investors in Multinational…

Q: shock in a flexible exchan

A: A movement along the aggregate demand curve, such as a change in monetary policy under flexible…

Q: Critically evaluate the argument that fixed exchange rate regime is better than flexible exchange…

A: Fixed exchange regime refers to that regime in which exchange rate in a country remains fixed…

Q: Exchange rates can move up or down, and spot rates could move favourably as well as adversely.…

A: Currencies constantly rise and fall, thus imposing risk to importers, exporters and local industries…

Q: explain what economists attribute so much attention to Real Exchange Rates? Provide an answer that…

A: Exchange rates are the rates in which one currency could be exchanged into the currency of another…

Q: does it reduce forei

A: Financial instruments can be regarded as capital bundles that can be traded, or as assets that can…

Q: why a firm should consider hedging net payables and recivables with currency options rather than…

A: Hedging is the process by which risk can be reduced. Options are the derivative instruments that…

Q: Exchange rates are highly volatile.     Exchange rate fluctuations have an adverse effect on the…

A: The central bank is responsible for the monetary policy of the country. It fixes the exchange rate,…

Q: Explain why the following statement is true or false: “The smaller and less liquid markets and…

A: Currency market or foreign exchange market is defined as the global decentralized or OTC market…

Q: Why the single currency eliminates exchange rate fluctuation and why is better for the countries to…

A: Single Currency refers to the currency used by more than one country. In other words, when more than…

Q: long position in foreign exchange? Does a successful Long position mean the currency price becomes…

A: A Long Position  also known as simply Long is the buying of stock, currency or commodity with the…

Q: What are the advantages or the disadvantages of hedging with currency options as opposed to future…

A: Hedging is used to insulate the investor of the risks of currency fluctuations in an international…

Q: Show the different arguments put forward by the proponents and opponents of currency hedging?

A: Following reasons are given by opponents of hedging: Managers cannot outguess the market.…

Q: A U.S. firm will be ________ by dollar _______ if its expenses are more susceptible to exchange rate…

A: There are instances when a company based in USA has expenses that are more susceptible to exchange…

Q: Show the different arguments put forward by the proponents and opponents of currency hedging?

A: Currency Hedging: Currency Hedging is the act of getting into a financial contract in order to guard…

Q: The bid-ask spread on an exchange rate implies _______. A. the transaction cost of foreign exchange…

A: Step 1 The spread of a bid-ask is the difference between the asking and bid prices in the market. A…

Q: Explain in general terms how various forms of arbitrage can remove any discrepancies in the pricing…

A: "Since you have asked multiple questions, we will solve the first question for you. If you want any…

Exchange Rate Risk

It is the possibility that the value of a currency will fluctuate in the future. In the wake of globalization, business establishments have increasingly ventured into international markets. The volume of international trade has prospered excellently in the near past and is expected to be more affluent in the future. The use of exchange-traded derivative financial instruments has been multi-folded to provide for the requirements of various MNCs and offshore potential investors. Most banks and financial institutions have helped integrate the global economies. Our Government has introduced some bold and extreme measures to fulfil the purpose behind the fiscal, industrial, and monetary policies. The enactment of GST is a huge step towards streamlining the taxation system of the country. Owing to Covid-19, this aspect of corporate risk management has become critical.