International Financial Management

This document discusses international financial management, including exchange rate changes, impact on US exporters, risk mitigation strategies, estimating currency appreciation/depreciation, and calculating cross-exchange rate.

Running head: INTERNATIONAL FINANCIAL MANAGEMENT
International Financial Management
Name of the Student:
Name of the University:
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1INTERNATIONAL FINANCIAL MANAGEMENT
Table of Contents
5. Calculating the exchange rate changes each of the two currencies using the indirect exchange
rate:..................................................................................................................................................2
6. Identifying the impact of the change in exchange rate for US exporters:...................................4
7. Indicating the type of risk associated with US exporters:...........................................................4
8. Discussing the ways by which risk can be mitigated by the US exporters:................................5
9. Discoing two ways expected return of currency appreciation/depreciation can be estimated:...6
10. Calculating the cross-exchange rate between the two currencies:.............................................6
References and Bibliography:..........................................................................................................9

2INTERNATIONAL FINANCIAL MANAGEMENT
5. Calculating the exchange rate changes each of the two currencies using the indirect
exchange rate:
Date Indirect exchange rate (JPY/USD) Indirect exchange rate (KRW/USD)
12/31/201
8 0.00912575 0.0008974244
11/30/201
8 0.00881290 0.0008925065
10/31/201
8 0.00885426 0.0008756414
9/30/2018 0.00879585 0.0009007792
8/31/2018 0.00900576 0.0008963545
7/31/2018 0.00893815 0.0008982708
6/30/2018 0.00903506 0.0008968288
5/31/2018 0.00918949 0.0009254204
4/30/2018 0.00914662 0.0009341866
3/31/2018 0.00940911 0.0009422762
2/28/2018 0.00937471 0.0009214806
1/31/2018 0.00915835 0.0009345096
12/31/201
7 0.00887390 0.0009368735
11/30/201
7 0.00888652 0.0009190078
10/31/201
7 0.00879972 0.0008941185
9/30/2017 0.00888968 0.0008731337
8/31/2017 0.00909339 0.0008889995
7/31/2017 0.00907029 0.0008933357
6/30/2017 0.00889838 0.0008730346
5/31/2017 0.00902690 0.0008931362
4/30/2017 0.00896459 0.0008788273
3/31/2017 0.00897747 0.0008947345
2/28/2017 0.00886682 0.0008788891
1/31/2017 0.00886525 0.0008683194
12/31/201
6 0.00855505 0.0008283220
11/30/201
6 0.00873591 0.0008490406
10/31/201
6 0.00954016 0.0008750974

3INTERNATIONAL FINANCIAL MANAGEMENT
9/30/2016 0.00986777 0.0009075151
8/31/2016 0.00966931 0.0008958165
7/31/2016 0.00979816 0.0008990865
6/30/2016 0.00968148 0.0008677919
5/31/2016 0.00903261 0.0008405198
4/30/2016 0.00940203 0.0008734921
3/31/2016 0.00888257 0.0008733853
2/29/2016 0.00887390 0.0008075979
1/31/2016 0.00826037 0.0008277392
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
1/1/2018
3/1/2018
5/1/2018
7/1/2018
9/1/2018
11/1/2018
950
1000
1050
1100
1150
1200
1250
1300
0.0007000000
0.0007500000
0.0008000000
0.0008500000
0.0009000000
0.0009500000
0.0010000000USD/KRW Direct and Indirect
Direct exchange rate (USD/KRW) Indirect exchange rate (KRW/USD)

4INTERNATIONAL FINANCIAL MANAGEMENT
1/1/2016
3/1/2016
5/1/2016
7/1/2016
9/1/2016
11/1/2016
1/1/2017
3/1/2017
5/1/2017
7/1/2017
9/1/2017
11/1/2017
1/1/2018
3/1/2018
5/1/2018
7/1/2018
9/1/2018
11/1/2018
90
95
100
105
110
115
120
125
0.00700000
0.00750000
0.00800000
0.00850000
0.00900000
0.00950000
0.01000000
0.01050000
USD/JPY Direct and Indirect
Direct exchange rate (USD/JPY) Indirect exchange rate (JPY/USD)
6. Identifying the impact of the change in exchange rate for US exporters:
The US exporter providing products to Japan and Korea would directly have impact from
the exchange rate as the overall prices that would be quoted by the exporter would alter with the
fluctuations in the currency price. The US export into Japan will ensure that the overall currency
conversion rate is appropriate to support it selling price and does not reduce actual value of the
export while converting the Japanese Yen into USD. In the similar instance the fluctuations in
USD/KRW will directly increase the fluctuations and risk for a US based exporter. There is
relevant risk for us export of as the overall fluctuations in the currency market will alter the
prices all the products that are exported to Korea. However, Korean prices are relatively similar
share the importance of Korea would ship to other and other supplier providing them with low
cost product. Hence, it could be understood that the US exporter is affected by the currency
conversion rate which can be mitigated by using adequate hedging measures (Brzoza-Brzezina,
Kolasa and Makarski 2017).

5INTERNATIONAL FINANCIAL MANAGEMENT
7. Indicating the type of risk associated with US exporters:
Depreciation of home currency value to foreign currency:
The major risk that is imposed on the US exporters is from the depreciation of home
currency value to the foreign currency. The currency market is relatively considered to be
volatile in nature where the decisions made by the government of US and other foreign countries
would have a direct impact on the valuation of USD. Being a US exporter that would be
collected is in foreign currency which would be converted to USD by the exporter. The
depreciation of home currency value would reduce the profits from the exports and reduce
revenue generation capability of the exporter (Emms et al. 2014).
Intense competition from the international market:
The second risk for the US exporter is the increase in competition from the international
market, due to the fluctuations in the currency exchange rate the international market could
hamper the export conditions of US export. The price competitiveness from the international
market could also have negative impact on the export demand of the US exporter.
8. Discussing the ways by which risk can be mitigated by the US exporters:
The risk of currency conversion can be mitigated by the US exporter with the help of
adequate hedging measures. The use of options and futures contracts would eventually allow the
US exporters to minimize the level of risk involved in the export trade. The future contracts are
an adequate measure, which fixes the overall conversion rate of the currency for a stipulated
time. Moreover, the use of option contracts could also allow the US exporter to fix the currency
conversion rate at a certain period and minimize the risk exposure of volatile currency market.

6INTERNATIONAL FINANCIAL MANAGEMENT
However, the use of option contracts could eventually allow investors to minimize the risk
exposure of the currency market by thing certain premiums on the contract. In this manner, the
US exporter can take advantage of the price trend of the currency market. Then the prices are
going adverse the use exporter could initiate the option contract, while when the prices are in
favorable positions then the option contract could be annulled by paying only the premiums
(Submitter et al. 2015).
9. Discoing two ways expected return of currency appreciation/depreciation can be
estimated:
There are two possibly ways in which the overall currency value is appreciated or
depreciated in the currency market, which are depicted as follows.
Change in interest rates:
The alternations in the interest rate have direct impact on the currency valuation of a
country. The interest rate, inflation and currency rates are highly correlated with each other,
where changes in one value are directly reflected on components. For example, increase in
interest rates would provide higher returns to the lenders, where demand from foreign investors
will increase, which in turn would cause the rise in the exchange rates (Buszko and Krupa 2015).
Inflation:
Changes in the inflation rate of an economy have directly impact on its exchange rate, as
it is highly correlated. Inflation rate mainly depicts the value of a currency, where inflation rate
low increases the values of the currency, while high inflation rate depreciates the currency.

7INTERNATIONAL FINANCIAL MANAGEMENT
10. Calculating the cross-exchange rate between the two currencies:
JPY
KRW =10.1693 USD
JPY =109.58 USD
KRW =1,114.30Cross currency value= JPY
KRW = JPY
USD × USD
KRW
Cross currency value= JPY
KRW = 1
109.58 × 1,114.30ross currency value= JPY
KRW =10.16882643
Spot Price Cross currency
Date
JPY/
KRW JPY/KRW Arbitrage opportunity
12/31/2018 10.16930 10.16883 0.00047
11/30/2018 9.87390 9.87433 -0.00043
10/31/2018 10.11130 10.11174 -0.00044
9/30/2018 9.76440 9.76471 -0.00031
8/31/2018 10.04650 10.04710 -0.00060
7/31/2018 9.95090 9.95039 0.00051
6/30/2018 10.07440 10.07445 -0.00005
5/31/2018 9.93010 9.93007 0.00003
4/30/2018 9.79060 9.79100 -0.00040
3/31/2018 9.98600 9.98551 0.00049
2/28/2018 10.17310 10.17353 -0.00043
1/31/2018 9.79880 9.80016 -0.00136
12/31/2017 9.47220 9.47183 0.00037
11/30/2017 9.66930 9.66969 -0.00039
10/31/2017 9.84220 9.84178 0.00042
9/30/2017 10.18140 10.18135 0.00005
8/31/2017 10.22820 10.22879 -0.00059
7/31/2017 10.15290 10.15329 -0.00039
6/30/2017 10.19260 10.19247 0.00013
5/31/2017 10.10740 10.10697 0.00043
4/30/2017 10.20110 10.20063 0.00047
3/31/2017 10.03330 10.03367 -0.00037
2/28/2017 10.08860 10.08867 -0.00007
1/31/2017 10.20920 10.20966 -0.00046
12/31/2016 10.32770 10.32817 -0.00047
11/30/2016 10.28960 10.28916 0.00044
10/31/2016 10.90190 10.90183 0.00007
9/30/2016 10.87280 10.87340 -0.00060
8/31/2016 10.79330 10.79385 -0.00055

8INTERNATIONAL FINANCIAL MANAGEMENT
7/31/2016 10.89630 10.89790 -0.00160
6/30/2016 11.15640 11.15645 -0.00005
5/31/2016 10.74650 10.74645 0.00005
4/30/2016 10.76320 10.76373 -0.00053
3/31/2016 10.17070 10.17028 0.00042
2/29/2016 10.98800 10.98802 -0.00002
1/31/2016 9.97990 9.97943 0.00047

9INTERNATIONAL FINANCIAL MANAGEMENT
References and Bibliography:
Brzoza-Brzezina, M., Kolasa, M. and Makarski, K., 2017. Monetary and macroprudential policy
with foreign currency loans. Journal of Macroeconomics, 54, pp.352-372.
Buszko, M. and Krupa, D., 2015. Foreign currency loans in Poland and Hungary–a comparative
analysis. Procedia Economics and Finance, 30, pp.124-136.
Emms, M., Arief, B., Freitas, L., Hannon, J. and van Moorsel, A., 2014, November. Harvesting
high value foreign currency transactions from emv contactless credit cards without the pin.
In Proceedings of the 2014 ACM SIGSAC Conference on Computer and Communications
Security (pp. 716-726). ACM.
Submitter, F., Kolozsi, P.P., Banai, A. and Vonnak, B., 2015. Phasing out household foreign
currency loans: schedule and framework. Financial and Economic Review, 14(3), pp.60-87.