Foreign Currency Exchange Risk Companies sell and

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Foreign Currency Exchange Risk Companies sell and buy goods and services in currencies other than their home currency. US companies sell to European customers Account receivable (AR) in foreign currency (FC) US companies buy from

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01
Foreign Currency Exchange Risk Companies sell and buy goods and services in currencies other than their “home” currency.
US companies sell to European customers  Account receivable (A/R) in foreign currency (FC)
US companies buy from European suppliers  Accounts payable A/P in foreign currency (FC)
Foreign exchange risk  The foreign currency fluctuate (volatility) in value which will give rise to gains and looses from the A/P and A/R foreign exposure CPA candidate or student, visit:
www.farhatlectures.com<br>
02
Factors that could influence exchange risk Trade factors
Inflation
Income
Government policies
Financial Factors
Interest rate
Ease of capital flow CPA candidate or student, visit:
www.farhatlectures.com<br>
03
Trade factors Relative rate Inflation
Value of currency reduced ==> demand goes down. Why?
Turkish lira is going down? What do you do?
Exchange your local currency to US Dollar to maintain your currency value
Relative income factor:
Income rises create a demand for the foreign currency
Foreign currency should rise
Government policies/intervention:
Monetary policy (expansionary lead to depreciation in currency versus restrictive which lead to appreciation)
Fiscal policy (could lead to appreciation or depreciation)
Setting a fixed exchange rate
Subsidizing
Encouraging export or import; trade barrier CPA candidate or student, visit:
www.farhatlectures.com<br>