International Financial Management - Study Material with Solved Assignments

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
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1INTERNATIONAL FINANCIAL MANAGEMENT
Table of Contents
Question 1:.................................................................................................................................2
Question 2:.................................................................................................................................3
Requirement a:.......................................................................................................................3
Requirement b:.......................................................................................................................3
Requirement c:.......................................................................................................................4
Requirement d:.......................................................................................................................4
Requirement e:.......................................................................................................................4
Question 3:.................................................................................................................................5
Requirement a:.......................................................................................................................5
Requirement b:.......................................................................................................................5
Question 4:.................................................................................................................................5
Question 5:.................................................................................................................................6
Question 6:.................................................................................................................................7
Question 7:.................................................................................................................................7
References:.................................................................................................................................8

2INTERNATIONAL FINANCIAL MANAGEMENT
Question 1:
Transaction exposure:
It is termed as short-term economic exposure, which relates to the risk associated with
particular contracts entered into by the organisation resulting in foreign exchange exposures.
A transaction leading to outflow or inflow of foreign currency results in transaction exposure
(Adam, Fernando and Salas 2017). For instance, Firm A located in Australia has a contract
for buying raw materials from Firm B situated in UK at a current fixed price for the
upcoming two years. The foreign exchange payer is identified as Firm A and it is exposed to
transaction risk from the pound rate movements relative to AUD. If there is decline in pound
value, smaller payments would be made in AUD terms and in the opposite case, the payments
would be larger resulting in foreign currency exposure.
Economic exposure:
When an unavoidable foreign exchange exposure affects an organisation continuously
over the long-term, it is deemed to be economic exposure. The market price of the
organisation would be affected, since the risk is inherent to the organisation, which would
affect its profit level over the years (Bacha 2017). For example, a cloth manufacturer in
Australia having its market concentration in UK is exposed continually to the pound rate
movements and thus, it is exposed to economic exposure.
Translation exposure:
Translation exposure is of accounting nature and it is associated with profit or loss
taking place from the translation or conversion of the financial statements of a subsidiary
situated in another nation (Bartram 2017). For example, an organisation like General Motors
might sell cars in about 200 nations and those cars could be manufactured in as many as 50