Fin/370 Finance for Business-Week Five Discussion Questions

Questions: A).What is meant by foreign exchange risk? B).What specific problems does foreign exchange present in an organization? C).How may an organization that needs euros in 6 months protect it from currency fluctuations? Answers: A). Foreign Exchange Risk is when a company will export a product to another country. B). The inherent risk happens when the company runs into the problem of currency values, naturally foreign countries want to use their currency and that itself causes risk. The risk is in not knowing or understanding the foreign currency values. Also, the company would then have the added task of taking the foreign currency and converting it back to U.S. currency. For example; assume that you paid $3500 for avocados in Mexico, only to find upon arriving back in the U.S. that the inventory’s worth in American dollars was much lower. In this case risk equals loss. Knowing the foreign markets is absolutely necessary for successful foreign trade. C). This can be summarized in a payment of 2% down (now) whereby, following 6 months of proper budgeting, the balance is paid. That way the exchange rates are locked in. This can help when using specific loans for product renewal or company expansion as example, especially until payment is due. Questions: D). What is globalization? E). Why has globalization become so important during the last 10 years? F). How will globalization change financial management in the future?

Answers:

D). The progress of an increasingly united global economy noted especially for free trade, free flow of capital, and the “tapping into” of cheaper foreign labor markets. The term was “coined” in between the 1940’s and 50’s. Globalization can also be stated as...