This website uses cookies to ensure you have the best experience. Learn more

Financial Transactions Essay

606 words - 3 pages

Transaction Exposure
When conducting business aboard, cash inflows are affected when a variety of currencies are involved. In the case of Nike’s proposal to expand in India, there are ways to migrate exchange rate risks by exposing the possible risks before they affect the company’s profit margin. One method is the transaction exposure. Transaction exposure is the degree to which the value of future cash transactions that are affected by exchange rate fluctuations. According to Madura,
“Transaction exposure can have a substantial impact on a firm’s earnings. It is not unusual for a currency to change by as much as 10 percent in a given year. If an exporter denominates its exports in a foreign currency, a 10 percent decline in that currency will reduce the dollar value of its receivables by 10 percent. This effect could possibly eliminate any profits from exporting” (Thomson South-Western 2006).

To assess transaction exposure, Nike will ...view middle of the document...

It helps to identify currencies whose values are most likely to be stable or highly variable in the future. The equation for a portfolio’s standard deviation suggests that positive cash flows in highly correlated currencies result in higher exchange rate risk for the MNC.
The best technique to eliminate transaction exposure is through the money market. A money market hedge involves taking a money market position to cover a future payables or receivables position. In the case of Nike, a money market hedge is best because the company will payables and receivables if they expand into India. Nike is already a successfully stable company, so they could invest a deposit into purchasing foreign currency for payables to future employees. As far as receivables go, Nike could hedge their position by borrowing the currency now and converting it to dollars. The receivables will be used to pay off any loans.
Political
Politics are very influential when it comes to conducting business aboard. Politics can either make or break a business proposal. When it comes to Nike and their proposal to expand into India, politics are very important to consider during the decision making process. India is a poverty stricken country that needs business investments to survive. According to Daniel,
“India's economy is set for its worst performance in a decade after three consecutive quarters of growth near 5.5 percent. High government spending has led to a fiscal deficit that economist say is likely to hit 5.6 percent this year, exacerbated worse by a fall in revenues” (Daniel, F.,2012).
The decision making process for Nike must consider all political events that exist within the country of interest. Religion, economy, governmental positions, all these factors will affect the overall profit of the business. In this case, hedging in the currency call options would be the best decision because if the economy doesn’t recover, then Nike could let any contracts pending expire.
References
Daniel, F. (2012). Key political risk to watch in India. FACTBOX . Retrieved from http://in.reuters.com/article/2012/12/05/india-political-risks-idINDEE8B401Q20121205

Madura, J. (2006). International financial management (8th ed.). Mason, OH: Thomson/South-Western

Other assignments on Financial Transactions

Financial Statements Essay

1525 words - 7 pages -end or year-end period (Weygandt, 2008). Statement of Cash Flow – summarizes information about the cash inflows (receipts) and outflows (payments) for a specific period. The statement of cash flows reports the cash effects of a company’s operations during a period, its investing transactions, its financial transactions, the net increase or decrease in cash during the period and the cash amount at the end of the period. It provides

None Essay

2422 words - 10 pages |Points | |Objectives |Identify the four basic financial statements. | | | | |Classify transactions using the rules of debit and credit. | | | | |Journalize basic transactions

Financial Institutions And Financial Markets

1111 words - 5 pages . They are responsible for financial transactions such as deposits, investments, and loans. Examples of financial institutions are commercial banks, investment banks, credit unions, insurance companies, mutual funds, and brokerages. A few of the well-known U.S. financial institutions are Bank of America, JP Morgan Chase Bank, Wachovia Bank, and Wells Fargo Bank. Financial institutions provide a means of savings for society and businesses

Worldcom

472 words - 2 pages . Specifically, Sarbanes-Oxley requires that the following are followed by all corporations: 1. Senior executives are personally responsible for the accuracy and completeness of the financial reports. Section 302 requires that the Chief Executive Officer and Chief Financial Officer certify and approve the integrity of their company financial reports. 2. Require reporting on financial transactions and stock transactions of corporate officers

Auditing

494 words - 2 pages regarding the truth and fairness of a client's financial report? a. The auditor b. The expert c. The client's management d. The client's audit committee 10. Sampling is not required when: a. It is the first year that the auditor has done the audit for a client b. The auditor is conducting tests of controls c. An audit procedure is conducted on an entire group of transactions d. The client requests the auditor not to collect samples of certain transactions

Apollo Case

526 words - 3 pages the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit will provide a reasonable basis for our opinion. Our procedures will include tests of documentary evidence supporting the transactions recorded in the accounts, and direct confirmation of receivables and certain

Finance 370 Week 2

1077 words - 5 pages Fin 370 Week 2 Individual Assignment Chap. 14 Questions 14-1, 14-3, 14-4 Chap. 15 Questions 15-12A, 15-13A Question 14-1 What are financial markets? What function do they perform? How would an economy be worse off without them? Financial markets report price for each good; they are institutions and procedures that facilitate transactions in all types of financial claims (securities). Each financial market performs a different

Balance Sheet

744 words - 3 pages financial accounting records. GAAP relates to all the aspects of recording, preparing and presenting the financial transactions. B. Liquidity. As per Investopedia, Liquidity refers to: 1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. 2. The ability to convert an asset to cash quickly. Also known as

Gasb And Fasb Analysis

653 words - 3 pages have facets different from one another. The FASB maintains principles modern to mirror adjustments in the fiscal milieu. Thus, the GASB sustains principles up-to-date to contemplate transformations in the legislative setting. Structures of the committees are identical, but each board has different standards regarding innumerable accounting transactions and financial reporting features. The modified accrual basis of accounting divaricates from

Eco 316 Entire Course

335 words - 2 pages Allocation.pdf ECO-316 Week 1 Chapter 6 Determining Market Interest Rates.pdf ECO-316 Week 1 DQ 1.doc ECO-316 Week 1 DQ 2.doc ECO-316 Week 2 Chapter 10 Information and Financial Market Efficiency.pdf ECO-316 Week 2 Chapter 11 Reducing Transactions Costs and Information Costs.pdf ECO-316 Week 2 Chapter 12 What Financial Institutions Do.pdf ECO-316 Week 2 Chapter 7 Risk Structure and Term Structure of Interest Rates.pdf ECO

Statement Of Cash Flows

1644 words - 7 pages existing bond holders; * Converting bonds to common shares; * Acquiring shares in a company in exchange for shares of the reporting enterprise; and * Issuing a stock dividend, which increases CS and decreases retained earnings. •These transactions must be fully explained in the disclosure notes. Note Disclosure •When a non-cash transaction is excluded from the SCF, it is included in a disclosure note to make sure financial statement

Similar Documents

Acct504 Case Study 1

332 words - 2 pages Case Study 1 (Part A) (Learning Objectives 4, 5, 6: Analyze the impact of business transactions on accounts; record (journalize and post) transactions in the books; construct and use a trial balance) During the first month of operation of Gordon Construction, Inc., completed the following transactions: June2 | Gordon received $55,000 cash and issued common stock to the stockholders. | 3 | Purchased supplies, $3,000, and equipment, $5,200

Accounting Essay

384 words - 2 pages Media Summary Paper Irene Chumo ACC/300- Principles of Accounting January 26, 2015 September Foster Media Summary Paper The media that i used was the video on financial statements, “financial statements are records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for

Week 5 Essay

277 words - 2 pages fees. At December 31, the fair values of the NJF and SEK common stocks were $39 and $30 per share, respectively. Journalize investment transactions, prepare adjusting entry, and show financial statement presentation. (SO 2, 3, 5, 6), AN Instructions a. Journalize the transactions and post to the accounts Debt Investments and Stock Investments. (Use the T account form.) b. Prepare the adjusting entry at December 31, 2012, to report the

Auditing Work Essay

826 words - 4 pages Cut Off: Cutoff relates to whether transactions and events have been recorded in the correct accounting period. Audit procedures must ensure that transactions occurring near year-end are recorded in the financial statements in the proper period. For example, the auditor may want to test proper cutoff of revenue transactions at December 31. This can be done by examining a sample of shipping documents and sales invoices for a few days before