Concept of currency exposure risk

Reference no: EM13791312

DGP Inc. sells 100,000 Gizmos to a retailer in Europe for €100,000 (Euros) on terms of 30 Days from the date of Invoice. The current rate of the EUR/USD is 1.3868, therefore DGP Inc books the sale as an accounts receivable of US$138,680.

Instructions

Define and discuss the concept of Currency Exposure Risk, Translation Exposure, and Economic Exposure.
If the exchange rate of EUR/USD was 1.2868 in 30 days, what would be the impact on the company's Profit and Loss at the time of the receipt of payment from the European customer? What would be the Economic exposure for the company? What would be the Translation Exposure if any? Include calculations.
What would be the impact on the firm if the exchange rate was EUR/USD 1.4868 in 30 days? Discuss in relation to the three currency exposures in 2. Include calculations.
How could DGP Inc. eliminate or reduce these exposure risks? Provide two hypothetical examples to support your answer.

Reference no: EM13791312

Questions Cloud

Identify a contemporary health care issue : Identify a contemporary health care issue

Which is expected to grow at a constant rate : B&B currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&B's financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million. B&B's WACC is 1..

Describe overall leadership style of your senior executive : Describe the overall leadership style(s) of your chosen senior executive. Analyze the organizational structure and culture of the company your chosen executive has led.

Plan of action and communication with the client : Suppose a client has come to you with a question about corporate taxation. Discuss your plan of action and communication with the client. Remember, the client does not have any technical background, and you need to communicate in terms he or she w..

Concept of currency exposure risk : Define and discuss the concept of Currency Exposure Risk, Translation Exposure, and Economic Exposure.

What are some benefits and limitations of the grapevine : how has the use of email and social networks increased the amount of information flowing through the organization's grapevine. What are some benefits and limitations of the grapevine

Explain common organizational security threats : Create either a PowerPoint presentation, or a training manual, that will help get the team to think about security. This training document should cover the following key areas: 1. Explain common organizational security threats (avenues of attack).

Learn what sociology encompasses : Learn what sociology encompasses

Explain the justification for requiring lessees : Explain the justification for requiring lessees to capitalize certain long-term leases. Do no limit your discussion to the specific criteria for classifying a lease as a capital lease.

User Account

All Pages