Foreign Exchange and Trade Risk ^{3rd Ed.}

The aim of this course is to introduce students to accounting and finance problems which face organsations at board level and to enable them to feel at ease working with finance and accounting experts as and when necessary.

By the end of this course, students will have a grasp of the fundamentals of financial analysis and corporate financial theory and will know how to tackle the main financial problems they are likely to encounter in the work environment. The financial issues discussed will be those relevant in the private and public sectors and will also be relevant in a global context.

Financial Strategy covers financial statement analysis, the cost of capital, project appraisal, company valuation, foreign exchange and interest rate markets, management and investor performance measures.

On completing this course, managers should be able to:

• appreciate the financial strategy issues affecting organisations
• understand the relevance of finance and accounting both within the organisation and to stakeholders in organisations
• undertake a financial analysis of an organisation and be able to interpret the results in the context of lending and investing decisions
• make investment decisions, both for projects and companies
• be aware of the financing choices available to organisations and how financial structure should be determined
• assess the financial risks facing organisations, in particular credit, interest and foreign exchange risk, and adopt risk hedging strategies which suit the risk profile of the organisation concerned
• understand how organisations measure financial performance internally and how their financial performance is assessed by stakeholders in a global context

1. Introduction
• Aims and objectives of the unit
2. What is Foreign Exchange Risk?
• 2.1 The Nature of Foreign Exchange Exposure
• Transaction exposure
• Translation exposure
• Economic exposure
• 2.2 Transaction Exposure
• 2.3 Translation Exposure
• 2.4 Economic Exposure
• 2.5 Measurement of Foreign Exchange Exposure
• Measurement of transaction exposure
• Measurement of economic exposure
3. The Market for Foreign Exchange
• 3.1 What and Where is the Foreign Exchange Market?
• 3.2 The Size of the World Currency Markets
• 3.3 Why and for Whom Does the Forex Market Exist?
4. The Mechanics of Foreign Exchange
• 4.1 Spot Rates
• 4.2 Cross Rates
• 4.3 Forward Exchange Rates
• 4.4 How to Use the Spot and Forward Exchange Markets
• The advantages and disadvantages of using forward contracts
5. Forecasting Foreign Exchange Rates
• 5.1 Fundamental Approaches to Forecasting Exchange Rates
• Four-way equivalence model — or parity conditions
• Purchasing power parity (PPP)
• The Fisher effect
• The interest rate parity theory (IRP)
• Expectations theory
• Balance of payments approach
• Monetarist approach
• 5.2 Technical Analysis
• 5.3 How Good is Exchange Rate Forecasting?
• 5.4 Currency Histograms
6. Forex Risk Management Within the Organisation
• 6.1 The Organisation of Exposure Management
• 6.2 Description of Management Techniques
• Arguments for not hedging
7. Techniques for Exposure Management
• 7.1 Techniques Towards the ‘Internal’ End of the Scale
• Technique 1 Exposure netting
• Technique 2 Matching
• Technique 3 Pricing adjustments
• 7.2 Techniques Closer to the ‘External’ End of the Scale
• Technique 4 Exchange risk guarantees
• Technique 5 Long-term borrowing in foreign currencies
• Technique 6 Financial instruments
8. Credit Risk and Settlement Risk
• 8.1 Funds Transfer and Settlement Risk
• 8.2 Credit Analysis
• 8.3 Credit Risk Tools for International Trade
• Letters of credit
• Letters of guarantee

• Appendix: Proof of Forward Margin Formula

MBA material, so what do you expect?