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Hypothetically, your employer, a large MNC, has asked you to assess its transaction exposure for calculating loss of Value due to Exchange Change Variations. You have been provided the following data for the next year: Danish Krone (DK) inflows to the company equal DK 50,000,000 and outflows equal DK40,000,000. British pound inflows equal £2,000,000 and outflows equal £1,000,000.
The spot rate of the DK is $0.15, while the spot rate of the pound is $1.50. Please provide your answer to the following questions:
Define transaction exposure and explain the factors that affect a firm’s degree of transaction exposure in a particular currency?
Assume that the movements in the Danish Kone and the British Pound are highly correlated. Please calculate and analyze the degree of transaction exposure based on the above assumption and data.
Please use the ppt in additional materials as one of the sources.