INTERNATIONAL FINANCE

International Finance

International Finance

Currency Exposure in the Case

While dealing with international currencies, a huge risk is involved and that is of the change in the exchange rate of the currency that the investor is holding. It is important that the people make sure that they get the right information regarding the currency in which they are investing. This will help them in making sure that the investment in the currency that they are making is helpful for them and also helps them in earning profits.

In the case mentioned, there is a 60 percent possibility that the American economy will boom and that I, as a UK investor will be able to gain more on the money that I have invested. This means that the investment that I have made will be in my favor and will help me in gaining more profits. On the other hand, there is a 40 percent probability that I would lose money if the American economy slows down. My investment will not be worthwhile as I will experience loss. The currency exposure in this case is not very high; however, the risk exists. While investing, the investor should always study the past trends of the currency and the economy he is investing in. This will help them in making sure that their investment works in the right manner and that it is able to reap profits for them.

In this case, the American economy should be studied so that the investor works in the most efficient manner and will also help the people in knowing as to what steps they should take and how their investment will prove to be profitable for the investor (www.bnet.fordham.edu). In this manner, the investor will be able to gain complete information of the economy, as well as, the currency that it is investing in. The foreign exchange market should also be studied so that the right investment options can be chosen and how this information helps in smart investing for the investor.

As mentioned in the case, the UK investor will be concerned about the American economy performance because it knows the importance of the progress in the American economy and how it helps the investors in earning more and in reaping more benefits. With this, the investor will be able to study the situation of the country; hence will be able to take better decisions for investment purposes.

Measuring Economic/Operating Exposure

Economic exposure is regarded as the change in the currency due to the change in the exchange rate of the currency in which the investor has invested. This means that the investor will have to make sure that he has thoroughly read and learned about the economy that it is investing in and knows the risks related to the operational exposure of the currency in which investment has been made. In order to measure the economic exposure, it is essential that the investor learns about the market structure and has knowledge about the way international and foreign markets are ...