Restructuring of operations a solution to operating exposure

Assignment Help Financial Management
Reference no: EM13208846

Discuss the following topic: "Is restructuring of operations a solution to operating exposure?" Operating exposure measures any changes in the present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates. From a broader perspective, operating exposure is not just the sensitivity of firm's future cash flows to unexpected change in foreign exchange rates, but also its sensitivity to other key macroeconomic variables, such as interest rates and inflation rates. However, these variables are often in disequilibrium with one another. Therefore, unexpected changes in interest rates and inflation rates could also have a simultaneous but differential impact on future cash flows.

Instructions:

1- To read the point and counter-point of this argument and express your own opinion on this topic :

Point: Yes 

Multinational firms may restructure their operations to reduce their operating exposure. The restructuring involves shifting the sources of costs or revenue to other locations in order to match cash inflows and outflows in foreign currencies. The way a firm restructure its operations to reduce operating exposure to exchange rate risk depends on the form of exposure. If future expenses are more sensitive than future revenue to the possible values of a foreign currency, then the firm can reduce its operating exposure by increasing the sensitivity of revenue and reducing the sensitivity of expenses to exchange rate movements. Firms that have a greater level of exchange rate-sensitive revenue than expense, however, would reduce their operating exposure by decreasing the level of exchange rate-sensitive revenue or by increasing the level of exchange rate-sensitive expenses.

Counter-point: No 

Some revenue or expenses may be more sensitive to exchange rates than others. Therefore, simply matching the level of exchange rate-sensitive revenue to the level of exchange rate-sensitive expenses may not completely insulate a firm from the exchange rate risk. Furthermore, restructuring operations to reduce operating exposure is a more complex task than hedging any single foreign currency transactions, which is why managing operating exposure is normally perceived to be more difficult than managing transaction exposure.

Reference no: EM13208846

Questions Cloud

Calculate the final market value of the flour : Explain the meaning of value added & its importance in the income approach. Consider the data for the selling price at each stage in the production of a 5 lb bag of flour sold by your local grocer. Use the value-added approach to calculate the fin..
What happens to the aggregate output in each case : Aggregate Demand & Supply Determine whether each of the following would cause a shift of the aggregate demand curve, a shift of the aggregate supply curve, neither or both. Which curve shifts, & in which direction
What inefficiencies could arise in the time period : One year during this period a poor harvest had a negative impact on supply of bread and the supply curve shifted resulting in an increase in market price. New York bakers found that the controlled price of bread in New York was below the new marke..
Two main mechanisms in nucleophilic substitution reactions : Discuss the two main mechanisms in nucleophilic substitution reactions. Provide examples, show reaction diagrams, discuss controls of reaction rates, stereochemistry
Restructuring of operations a solution to operating exposure : Is restructuring of operations a solution to operating exposure-Operating exposure measures any changes in the present value of a firm resulting from changes in future operating cash flows caused by any unexpected change in exchange rates.
Explain what is microsofts integration style : In regards to commodity chains, does microsoft exhibit backward or forward integration That is, has it bought its suppliers or does it buy from independent producers (As far as forward integration goes, i do not think that it fits).
Define the crystalization of sulfanilamide : Consider the crystalization of sulfanilamide from 95% ethyl alcohol. If impure sulfanilamide is dissolved in the minimum amount of 95% ethyl alcohol at 40 degrees celcius rather than 78 degrees celcius
Find the standard deviation of the repair distribution : Although all appliances are given a unique serial number when manufactured, until this year Armonco had no capability of determining how often any appliance was brought to an authorized service facility.
Explain two isotopic compounds are produced in the synthesis : Two isotopic compounds are produced in the synthesis of a new therapeutic drug which must be separated by repeated chromatography cycles. In each cycle, the solution containing both compounds must pass through a chromatography column

Reviews

Write a Review

 

Financial Management Questions & Answers

  Should china be forced to alter the value

Counter-point of this argument and express your opinion on this topic One to two paragraph and while in the discussion, read the point and counter-point which I have provided on this topic, then click on the forum in which you'd like to comment.

  Calculate payback period and internal rate of return (irr)

Company has an opportunity to make an investment with the estimated after tax cash flows

  Graph the bond yield to maturity

Identify two possibly mispriced bond issues, one overpriced and one underpriced. and graph the bond yield to maturity (YTM) on the y-axis of an XY-scatter plot, with the bond to maturity in years on the x-axis.

  Maximization of shareholder wealth

Maximization of shareholder wealth

  Compute the projects payback period

Draw a time line to show the cash flows of the project and compute the project's payback period, net present value (NPV), profitability index (PI), and internal rate of return (IRR).

  Describe statistical data on participation rates

Describe statistical data on participation rates, education and employment and income levels of individuals with disabilities

  Analyse the value of caraways equity

Analyse the value of Caraway's equity if it pays out a $200,000 cash dividend today and plans to pay a $1.2 million liquidating dividend at the end of one year.

  Fundamental factors of your selected bank

Examine the fundamental factors of your selected bank. On the basis of this fundamental analysis and other methods of share valuation, determine if your selected bank is overvalued or undervalued.

  Financial strategies, capital budgeting analysis

MBA 612, Financial Strategies, Capital Budgeting Analysis, Word Report and PowerPoint Presentation

  Compute the profits-losses from the strategy

The trade is performed over one week-How do the results change under these various scenarios? Discuss your results.

  Create a delta neutral portfolio of call options

Create a delta neutral portfolio of call options and stock. Short 10,000 call options - How many shares would you buy or sell anda - What is the price of the option if it is a European call?

  Calculate the average return per period for an investor

Calculate the average return per period for an investor who bought 100 shares of the Closed Fund at the initiation and then sold her position at the end of Period 4.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd