Chaper 2 Foreign Exchange Risk and Why It Should Be Managed.ppt

Foreign Exchange Risk and Why It Should Be Managed Chapter 2 I . Open Questions 1. How much do you about foreign exchange risk? 2. Why do firms refrain from active management of their foreign exchange exposure? 3. Use your own words to explain the economic justification for firms’ not managing foreign exchange risk. 4. What are the deeper reasons why foreign exchange risk should be managed at the firm level? II. Teaching Plan This chapter will cover 3 hours. 2 hours for the introduction of background information and explanations of terms and the texts. And the other 1 hour for discussion and practice. III. Teaching Methods Translation of key sentences Paraphrasing of key words and expressions Explanation of new terms Summarizing of key passages Discussion of important issues Questions and answers: interaction between teachers and students IV. Background Managing foreign exchange risks is of great significance for businesses due to its global nature and the weakness of the US dollar and currencies pegged to it. Further enquiries need to be made by businesses to fully understand the issues associated with foreign exchange risks. A comprehensive business plan must be formulated in order to manage foreign exchange exposure. At minimum, such plans should deal with good management information systems, contingency planning and other managerial and analytical techniques. V. Special Terms Functional currency 记账本位币 the primary type of money that a company uses in its business activities. Often a companys functional currency is the same as that of the nation in which it is headquartered, though this is not necessarily the case. The functional currency is most relevant for multinational corporations that conduct business in multiple currencies. 记账本位币是企业业务活动中使用的主要货币。通常公司的记账本位币与其总部所在国的记账本位币相同，但也不一定全是这样。记账本位币对使用多国货币的跨国公司而言十分重要。 International Fisher Effect 国际费雪效应 an economic theory that states that an expected change in the current exchange rate between any