1 Indiana Logistics Summit & 52nd Dr. LL Waters Transportation Conference Supply Chain – Management Practices for Currency.

Slides:

Advertisements

Similar presentations

Development of a Mongolian MBS Market Workshop on Housing Finance 28th June 2011 Presented by Jim France.

Advertisements

BY UCHE UWALEKE PhD. Understand key financial instruments Learn how derivatives could be used as Hedging instruments Be familiar with the main requirements.

Insight into Risk Management Richard Allen - CVA Market Risk Manager.

The Basics of Risk Management

1 Risk Management at Progressive Insurance How we got started Getting corporate support Capital Management Examples of deliverables The value risk management.

Chap. 1 The Study of Financial Markets Financial Markets – A Definition: –Markets in which funds are transferred between savers (investors) and borrowers.

Introduction to Derivatives and Risk Management Corporate Finance Dr. A. DeMaskey.

Shahin Tehranchi Zhuoting Liao Mark Strickland Nima Vahdat

Welcome to class of International Financial Management by Dr. Satyendra Singh University of Winnipeg Canada.

CHAPTER 18 Derivatives and Risk Management

Foreign Exchange Exposure What is it and How it Affects the Multinational Firm?

International Finance In Class Exercise Managing Foreign Exchange Risk.

© 2008 Pearson Education Canada13.1 Chapter 13 Hedging with Financial Derivatives.

Chapter 15 International Business Finance Key sections –Factors affecting exchange rates –Nature of exchange risk and types –How control exchange risk?

An Overview of Financial Markets and Institutions

Chapter 15 International Business Finance Key sections –Factors affecting exchange rates –Nature of exchange risk and types –How control exchange risk?

International Finance Chapters 12, 13, and 14 Foreign Exchange Exposure.

International Financial Markets By- Rahul Jain. Foreign Exchange Rate Determination Determined by Demand and Supply Determined by Demand and Supply This.

Foreign Currency Transactions and Hedging Foreign Exchange Risk

Slides prepared by April Knill, Ph.D., Florida State University Chapter 3 Forward Markets and Transaction Exchange Risk.

CHAPTER 8 A framework for interpretation

18-1 International Financial Management Chapter Objectives_1 Analyze the advantages and disadvantages of the major forms of payment in international.

Exchange Rate Risk International Finance and Development.

International Business 9e

Lecture 10: Understanding Foreign Exchange Exposure

Michal Bodlák. Definition  An investment bank is a financial institution that assists: individuals, corporations and governments companies involved in.

Instruments of Financial Markets at Studienzentrum Genrzensee Switzerland. August 30-September 17, 2004 Course attended by: Muhammad Arif Senior Joint.

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Investment Basics Clench Fraud Trust Investment Workshop October 24, 2011 Jeff Frketich, CFA.

Financial Management and Corporate Governance. WHAT FINANCIAL MANAGEMENT IS REALLY ABOUT you must then develop a plan. The plan requires answers to some.

2 The Domestic and International Financial Marketplace ©2006 Thomson/South-Western.

The International Financial System

© 2008 Pearson Education Canada13.1 Chapter 13 Hedging with Financial Derivatives.

21 Risk Management ©2006 Thomson/South-Western. 2 Introduction This chapter describes the various motives that companies have to manage firm-specific.

Derivatives and Risk Management Chapter 18  Motives for Risk Management  Derivative Securities  Using Derivatives  Fundamentals of Risk Management.

1 © 2012 John Wiley & Sons, Ltd, Accounting for Managers, 4th edition, Chapter 2 Accounting and its Relationship to Shareholder Value and.

Derivative securities Fundamentals of risk management Using derivatives to reduce interest rate risk CHAPTER 18 Derivatives and Risk Management.

Overview of Financial Management. OVERVIEW OF FINANCIAL MANAGEMENT The Corporation Life Cycle Value Creation & Maximization Financial Institutions & Process.

© 2012 Pearson Education, Inc. All rights reserved Transaction Exchange Risk Transaction exchange risk – possibility of taking a loss in foreign.

MANAGING FOREIGN ECHANGE RISK. FACTORS THAT AFFECT EXCHANGE RATES Interest rate differential net of expected inflation Trading activity in other currencies.

Transaction Exposure Risk due to lags in payments Hedging strategies October 27, 20151Transaction Exposure.

MNEs need access to capital Finance is integral to firm’s operating strategies Concern with access to capital in local and global markets Finance and Treasury.

MNEs need access to capital Finance and Treasury Functions in the Internalization Process Chief Financial Officer (CFO)—vice president of finance Multinational.

RISK MANAGEMENT : JOURNEY OR DESTINATION ?. What is Risk? “ Any uncertain event that could significantly enhance or impede a Company’s ability to achieve.

Copyright  2005 by Thomson Learning, Inc. Chapter 17 Managing Multinational Cash Flows Order Order Sale Payment Sent Cash Placed Received Received Accounts.

1 Chapter 2 The Domestic and International Finance Marketplace © 2001 South-Western College Publishing.

Risks in International Payment System, their forms and tools of elimination Veronika Krajčíková Daniela Masárová FEMMPA 11th group.

1 Foreign Currency Derivatives Markets International Financial Management Dr. A. DeMaskey.

Financial Management and Accounting McGraw-Hill/Irwin International Business, 11/e Copyright © 2008 The McGraw-Hill Companies, Inc. All rights reserved.

INTRODUCTION TO DERIVATIVES Introduction Definition of Derivative Types of Derivatives Derivatives Markets Uses of Derivatives Advantages and Disadvantages.

International Business Finance. Foreign Exchange Markets Participants:- –Banks and other financial institutions –Brokers – intermediaries/ confidential.

NIS Economics Financial Markets (non-bank Financial Institutes and assets)

Statement of Cash Flows Revsine/Collins/Johnson/Mittelstaedt: Chapter 17 McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights.

Chapter 15: Financial Risk Management: Concepts, Practice, & Benefits

Kirt C. Butler, Multinational Finance, South-Western College Publishing, 3e 12-1 Chapter 12 Operating Exposure to Currency Risk 12.1Managing Operating.

1 Banking Risks Management Chapter 8 Issues in Bank Management.

©2009 McGraw-Hill Ryerson Limited 1 of International Financial Management Prepared by: Michel Paquet SAIT Polytechnic ©2009 McGraw-Hill Ryerson Limited.

Chapter 10 Transaction Exposure Management. © 2013 Pearson Education1-2© 2013 Pearson Education1-2© 2013 Pearson Education1-2© 2013 Pearson Education1-2©

The Foreign Exchange Market

Copyright ©2003 South-Western/Thomson Learning Chapter 2 The Domestic and International Financial Marketplace.

Chapter 2 The Domestic and International Finance Marketplace © 2001 South-Western College Publishing.

Foreign Exchange Exposure. What is Foreign Exchange Exposure? Simply put, foreign exchange exposure is the risk associated with activities that involve.

Chapter 1: Introduction to International Accounting

Chapter 12 Operating Exposure to Currency Risk

FOREIGN EXCHANGE RISK MANAGEMENT

L1: Introduction to Risk Management

Risk Management with Financial Derivatives

Currency Exchange Rate Risks

Derivatives and Risk Management

Derivatives and Risk Management

Presentation transcript:

1 Indiana Logistics Summit & 52nd Dr. LL Waters Transportation Conference Supply Chain – Management Practices for Currency

2 Dealing in foreign currencies offers rewards and risks Treasury risk management has to be seen within an integrated risk framework Reference: “CFO – Architect of the Corporation’s Future”, John Wiley & Sons, 1997 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference

3 Business risk is a matter of perspective.  Finance, operational managers, institutional investors, all see risk differently.

4 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Business risk arises from the likelihood that something good won’t happen, as well as the threat that something bad will happen.

5 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference The population of risks can be divided into 5 (five) main groups:  StrategicRisks of plans fail  Financial  OperationalRisks of human errors or omission  CommercialRisks of business interruption  TechnicalRisks of physical assets failure

6 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Risks of financial controls fail  Treasury risks  Lack of counterparty / credit assessment  Sophisticated fraud  Systems failure  Poor inventory/receivables reconciliation Financial Risk

7 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference All types of risk affect the strategic direction and ultimately the company’s ability to generate shareholder value. In the past – risk might have been the insurance manager’s responsibility.  Financial control mattes are the treasurer’s responsibility.  Consumer relations might have been the sales and marketing responsibility.

8 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Today functionally segregating risk management is out-dated! An integrated view of business risks and risk management is required.

9 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference What is the reason for such a change? 1) More and more people study business performance Banks, investors, consumers demand more evidence how the company plans to maintain a strong balance sheet.

10 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference 2) Competitive pressures escalate Economic use of limited resources requires the company to lower its exposure of risks, which it is not in the business to take.

11 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference 3) Risk management can create new advantages The investment community may favor a stock, if it understands the rationale underlying the total risk management effort.

12 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference 4) Individual loss or gain can match business loss or gain. Senior executives with successful risk taking enjoy better career prospects.

13 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference 5) Corporate fortune can reverse overnight. News hits the stock market, a company’s position can flip- flop instantaneously.

14 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference 6) Global regulations grow more complex Corporations have the obligation to disclose to shareholders which risks they are in business to take, and what they are doing to manage them.

15 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Risk management means dealing with uncertainty.  What can go wrong, or fail to go right?  How often?  What counter-measures exist, or could be installed?  How likely are they to be effective?  What about risks we don’t know?  Awareness of what risks might arise, where and crucially, how material they are to the company.

16 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Focus on materiality, not source Risk management requires an integrated approach  Elimination of risks, eliminates opportunity for profits  Greater risks bring greater returns

17 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Corporate management decides on risk appetite.  Is the risk consistent with the company’s current philosophy?  With its history of gains and losses?  With investor’s understanding of how much is at risk?  With management’s skills and experience?  With the business’s cash flow, debt position, balance sheet strength – and so on?

18 Foreign currency risk as part of risk management  Foreign currency-a currency other than the functional currency of the business.  Foreign currency transactions require settlement in a currency other than the functional currency.  An exchange gain or loss occurs when the exchange rate changes between the purchase date and the sale date. Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference

19 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference How can you avoid/manage foreign exchange gains/losses?  Foreign exchange exposure occurs through Economic exposure Transaction exposure Translation exposure

20 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Foreign exchange gain and loss can be managed. 1) Through avoidance customer’s may not like it 2) Leading and Lagging 3) Netting Bilateral Multilateral

21 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference 4) Re-invoicing using a central office, which takes over foreign exchange exposure. 5) Hedging By forward contracts By purchase of futures By purchase of options By engaging swap contracts

22 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Examples of foreign currency management  By compensating business arrangements BMW buys parts in the US for Europe BMW manufactures cars in the US Siemens’ management of exports and imports

23 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference  By hedging Mercedes Benz Porsche VW

24 Indiana Logistics Summit & 52 nd Dr. LL Waters Transportation Conference Strategic approach to currency management  Centralize foreign exchange/ finance activities around the world to better realize exposures and fully integrate treasury operations with underlying business process systems. Thank you for your attention.