Chapter 9

Refers to the effect of exchange rate changes on the firm's competitive position, which, in turn, affects the firm's operating cash flows.

Refers to the fact that the dollar amount converted from a given cash flow from foreign operation will be affected by exchange rate changes.

A measure of the sensitivity of demand for a product with respect to its price.

The relationship between exchange rate changes and the price adjustments of internationally traded goods.

The coefficient obtained from regressing the home currency value of assets on the foreign exchange rate under consideration. This provides a measure of the firm's economic exposure to currency risk.

Refers to hedging exchange risk exposure using financial contracts such as currency forward and options contracts.

A strategy for managing operating exposure that involves sourcing from areas where input costs are low.

The extent to which the firm's operating cash flows will be affected by random changes in the exchange rates.

Long-term, operational approaches to hedging exchange exposure that include diversification of the market and flexible sourcing.