Reference no: EM132630366 , Length: 5
Albert, CEO of XYZ, Inc., desires to expand the company's sales through exports to three (3) foreign subsidiaries. Albert knows that the target subsidiaries are located in countries that require transactions to be denominated in the local currencies. Albert has researched foreign currency risk and knows that there is accounting exposure in accounting statements, operating exposure in future cash flows, and transaction exposure in outstanding obligations. Albert does not understand how these risks apply to XYZ, Inc. under his proposal or if there are any mitigating risk strategies available. Albert requests you, the head of the Risk Management division, to prepare a report that he can present to the Board of Directors on the potential foreign currency risk if XYZ, Inc. expands sales into these markets. XYZ, Inc.'s reporting currency is the U.S. dollar and the subsidiaries would purchase the merchandise as inventory items.
Note: You may create and / or make all necessary assumptions needed for the completion of this assignment.
Write a three to five (3-5) page paper in which you:
Question 1: Specify accounting exposure, operating exposure, and transaction exposure. Determine the main financial statement effects of each type of exposure if XYZ, Inc. expands as proposed.
Question 2: Determine two (2) types of hedges regarding foreign exchange risk, in general, and recommend the most advantageous risk mitigation strategy for XYZ, Inc. Provide support for your rationale.
Question 3: Determine the main accounting assumptions underlying each currently used method (e.g., current rate method and temporal method). Determine the fundamental differences in balance sheet exposure from the application of each method.
Question 4: Suggest the translation method that XYZ, Inc. should use in order to minimize balance sheet exposure. Provide support for your choice.
Question 5: Compare the U.S. GAAP approach to the IFRS approach of translating foreign currency financial statements. Determine the main similarities and differences between the two (2) methods of translation. Assuming one (1) of the subsidiaries of XYZ, Inc. is located in a highly inflationary country, determine the appropriate translation method under FASB and provide the theoretical justification for your response.
Explain the coercive forces and institutional environment
: Explain the coercive forces, institutional environment, interorganizational relationships, joint venture, legitimacy, niche, organizational ecosystem, retention
|
Define challenges that you have in working with the client
: Discuss at least three (3) challenges that you have in working with the client and/or family. Identify at least three (3) potential ways that you can use their.
|
Discuss the potential for abuse and fraud in this system
: Required - Discuss the potential for abuse and fraud in this system. Describe the controls that should be implemented to reduce the risks
|
Government in the development of the policy
: Describe its purpose and goals, and explain the role each of the three branches of government in the development of the chosen policy.
|
Compute two types of hedges regarding foreign exchange
: Determine two types of hedges regarding foreign exchange risk, in general, and recommend the most advantageous risk mitigation strategy
|
What is the npv of buying the truck on terms
: Laura's unlevered cost of capital is 17% and her tax rate is 34%. The loan includes a $1,000 application fee. What is the NPV of buying the truck on these terms
|
What is the firm production requirement for the period
: If the firm's beginning inventory is 50,000 units, what is the firm's production requirement for the period?
|
What are forecasted variable and fixed overhead costs
: Using each of the regression equations above, what are forecasted variable and fixed overhead costs? (Be sure to clearly identify FC vs VC.)
|
Prepare a memo to carol interpreting graph
: Prepare a one-half page memo to Carol, interpreting this graph and requesting any additional information that might be needed to explain this situation.
|