Foreign exchange exposure: it's not all on the balance sheet
Article Abstract:
Foreign exchange exposure is defined as adverse effects on corporate income and balance sheet accounts created by fluctuations in foreign currency exchange rates. Foreign exchange exposure can take several forms, including: accounting exposure, transaction exposure, translation exposure, economic exposure, commitment exposure, revolving transaction exposure, and invisible transaction exposure. Each of these forms of risk are explained, as are methods for quantifying the amount of risk the company may be exposing itself to and remedies for overexposure, such as hedging through equivalent import and export activities, financial hedges of borrowing in foreign countries when the U.S. dollar is strong, and foreign currency swap transactions which allow companies with surplus foreign currencies to establish individual exchange rates with other companies that need supplies of the foreign currency over the long term.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
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Reinvoicing: a currency exposure tool
Article Abstract:
The management of currency exposure by reinvoicing can provide centralized exposure management and free subsidiaries from administrative tasks. Tax benefits may also result from reinvoicing, but a minimum of $100 million in trade is necessary to justify the costly establishment of a reinvoicing company. The arrangement for cross-border flow of payments within a company is as follows: The American manufacturing subsidiary bills the reinvoicing company for goods in dollars and ships the goods to an overseas subsidiary. The reinvoicing company takes title to the goods and bills the overseas subsidiary for the shipment in its local currency. The selection of transfer price and exchange rate requires a consistent approach because tax authorities monitor possible corporate shift of profits.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1988
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Benefits of netting misunderstood
Article Abstract:
The benefits of international (cross-border) netting are often misunderstood; netting is not a tool to be used by the company to protect its currency exposures internationally, but is an effective settlement mechanism. Advantages of netting are: reduced float and value-dating loss, lower bank transfer commissions, reduced number of actual currency conversions, and better conversion rates.
Publication Name: Cashflow Magazine
Subject: Business
ISSN: 0196-6227
Year: 1986
User Contributions:
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