i) Transaction exposure
This relates to the gains or losses to be made when settlement takes place at some future date of a
foreign currency denominated contract that has already been entered into. It arises due to credit
imports and exports denominated in a foreign currency.
ii) Translation exposure
This arises from the need to consolidate worldwide operations according to predetermined
accounting rules. Assets, liabilities, revenues and expenses must be restated in home currency terms
in order to be consolidated into group accounts. The depreciation of host currency will reduce value
of consolidated assets and liabilities.
iii) Economic exposure
This relates to the possibility that the value of the company (the present value of all future cash flows) will change due to unexpected changes in future exchange rates. The volatility of exchange rate will affect the magnitude and uncertainty of future cashflows.
Kavungya answered the question on April 19, 2021 at 20:17
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Huge Ltd. is contemplating a complete share acquisition of Tiny Ltd. Huge Ltd is offering three of its
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2. The company can raise Sh.400 million through a bond issue. Each bond will have a face value of
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5. The average annual growth rate in dividends is 5.5% and this rate is expected to continue into the
foreseeable future. The company expects to pay an ordinary dividend per share of Sh.10 for the year
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6. The following investment proposals will be available to the company in the year ending 30
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Required:
a) Determine the cost of capital for each of the following sources of finance:
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Highspeed Electronics Limited has taken delivery of 50,000 electronic devices from an American
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Spot 0.013
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Kasuku Limited has set aside Sh. 40 million for investments as on 1 January 2004. Five proposals are presented to the company's board of directors by the finance manager as shown below:
Additional information:
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“Total Risk Management (TRM) will become a common term in finance just like Total Quality
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Required:
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Date posted: April 19, 2021. Answers (1)