Treasury &Risk Management

$30.00

  1. Assignment 1 (20%)maximum plagiarize 10% !!!

 

Attempt BOTH questions.

 

(1)        Discuss the possible foreign exchange risk and economic implications of each of the following types of exchange rate system for multinational companies with subsidiaries located in countries with these systems:

 

(a)          a managed floating exchange rate;

(b)          a fixed exchange rate linked to a basket of currencies; and

  • a fixed exchange rate backed by a currency board system.

 

** give examples, analyzing multinational companies in 3 countries.

Word limit: 1,500 words.

 

(2)     Clearly explain why is meant by Purchasing Power Parity (PPP) and Interest Rate Parity (IRP). What evidence is there for and against this theory.

 

Word limit: 1,500 words.

see the attached

TRM A1 (1)

Description

In the recent past, integration of world economy and proliferation of globalization has encouraged organizations to seek expansion beyond their native countries (Frenkel & Johnson 2013, p. 4).  In light of this, changes in the foreign exchange rates greatly affects the operations of companies both small and bigger corporations. It is thus imperative for business people and all organizations to fully understand the various foreign exchange regimes that are used in the world. Foreign exchange system affects the operations of all companies but has more effects on the operations of a multinational and it is thus important for a multinational to understand the possible foreign exchange risks as well as economic implications that are associated with various foreign exchange systems (Goldstein & Lardy, 2013). The aim of this paper is to look at the various foreign exchange systems and the risks and economic implications that multinationals operating in countries with the different systems is likely to encounter. A detailed explanation of purchasing power parity (PPP) as well as Interest Rate Parity (IRP) and the evidence that is there for and against the theory is given in the second part of the paper.