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ACC 401 Week 9 Assignment 2 : Foreign Currency Risk
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A + Grade Solution ACC 401 Week 9 Assignment 2 Foreign Currency Risk
Albert , CEO of XYZ , Inc ., desires to expand the company ’ s sales through exports to three ( 3 ) foreign subsidiaries . Albert knows that the target subsidiaries are located in countries that require transactions to be denominated in the local currencies . Albert has researched foreign currency risk and knows that there is accounting exposure in accounting statements , operating exposure in future cash flows , and transaction exposure in outstanding obligations . Albert does not understand how these risks apply to XYZ , Inc . under his proposal or if there are any mitigating risk strategies available . Albert requests you , the head of the Risk Management division , to prepare a report that he can present to the Board of Directors on the potential foreign currency risk if XYZ , Inc . expands sales into these markets . XYZ , Inc .’ s reporting currency is the U . S . dollar and the subsidiaries would purchase the merchandise as inventory items .
Note : You may create and / or make all necessary assumptions needed for the completion of this assignment .
Write a three to five ( 3-5 ) page paper in which you :
Specify accounting exposure , operating exposure , and transaction exposure . Determine the main financial statement effects of each type of exposure if XYZ , Inc . expands as proposed .
Determine two ( 2 ) types of hedges regarding foreign exchange risk , in general , and recommend the most advantageous risk mitigation strategy for XYZ , Inc . Provide support for your rationale . Note : Refer to Chapter 9 of the textbook for more information on corporate strategies regarding hedging foreign exchange risk .