Exposure to exchange rate
- The possibility of losses on its trading operations abroad as a result of various changes in the exchange rate:
1) RP W. from the translation or accounting arising on consolidation of assets, liabilities, income and expenses from subsidiaries (denominated in foreign currency) recorded in the parent company (expressed in the currency of the country reporting, which is the parent company) ;
2) RP W. from the transaction, which occurs in the case of imports or exports by product and loan funds abroad or investing in the foreign economy. For example, when exporting the product to the client company presented an invoice in the local currency of the country and it is given credit for a certain number of days. In this case the company is RP U. of exchange rate changes these days, which can lead to
increase or decrease in value of the local currency based on the currency of the country. As a result of a sudden drop in the foreign currency exchange rate in relation to the local potential profit from the transaction can be completely destroyed;
3) RP W. from a large cash flow associated with changes in exchange rates on future cash flows caused by the company's production and marketing operations. As a result of prolonged or sudden changes in the exchange rate the company can change its tactics to service the foreign market, as well as the tactics of the search sources of raw materials.
The company may reduce the RP W. from changes in exchange rates under certain conditions:
1) at an internal risk-management techniques, such as the comparison of currencies (currency of ownership comparison means with equivalent borrowing in the same foreign currency), leading and lagging (acceleration or delay in payment and receipt of foreign currency in the event of the expected change in the exchange rate), multilateral
mutual receipts and payments in foreign currency between subsidiaries
companies of a transnational corporation;
2) to reduce the risk of possible destruction or company may use external contractual obligations to the need for currency purchase and sale by means of factoring, etc.
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