He who multiplies riches multiplies cares.
— Benjamin Franklin
Transaction exposure to currency risk is defined as change in the value of monetary (contractual) cash flows due to an unexpected change in exchange rates. The good news is that transaction exposures are relatively easy to identify and manage, either by offsetting transactions within the firm or through external financial market hedges. This chapter covers transaction exposure management.
9.1 Transaction Exposure to Currency Risk
Rupert Taylor hadn't always been a successful tycoon. Growing up in Australia, his early passion was for Australian-rules football. Rupert was born with size and speed, and through athletic competition he developed daring and an indomitable will to succeed. After a coach from The Ohio State University witnessed his domination of a national all-star game, he was offered a scholarship to play American-rules football in the United States.
Rupert attacked this new sport with his customary enthusiasm. Perhaps too enthusiastically, for within days of his arrival he had antagonized most of his teammates with his aggressive play. Frustrated with his inability to play within the rules, he became belligerent with teammates and coaches alike. A part of Rupert's frustration was simply in understanding the rules of American football. As he told his mates back home, “Nobody understands American football.” In the end, he was thrown off the team when ...