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Applied International Finance I by Thomas J. O'Brien

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CHAPTER 3

FX Business and Equity Exposure

This chapter looks at two more types of FX exposure. The first is FX business exposure, which is the effect of FX rate changes on an operation’s business value. Business value is what an operation would be worth if it has no debt and no cash and marketable securities. The second is FX equity exposure, which is the sensitivity of a firm’s equity share value to unexpected FX rate changes.

Business Value

Finance theory tells us that a firm’s intrinsic business value is the present value of the firm’s future expected operating cash flow stream. Let image denote business value in US dollars; the expected operating ...

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