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CPA Foreign Exchange Exposures - YouTube
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currency prices can be volatile and
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organizations with exposures to foreign
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currencies can be significantly impacted
[12]
by unfavorable movements this is
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especially the case for importers and
[17]
exporters who have frequent transaction
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exposures on their buying and selling
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activities it is also highly relevant
[25]
for organizations with foreign
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operations or dealings who may have
[29]
translation exposures for their assets
[32]
and liabilities organizations can have
[35]
competitive exposures which refers to
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having competitors who source their
[40]
goods or services in a different
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currency an Australian importer will
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typically buy Goods quoted in a foreign
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currency it will need to sell Australian
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dollars to buy the foreign currency to
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then pay for the goods when the
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Australian dollar Falls or D values then
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it is more expensive for the Australian
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importer to import goods priced in the
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higher currency for example assume the
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cost of an imported good is one thousand
[70]
US dollars if the exchange rate is 80 US
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cents then it costs twelve hundred and
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fifty Australian dollars to buy if the
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Australian dollar falls to 75 US cents
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this increases the purchase price to
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1333 Australian dollars this highlights
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the transaction exposure for the
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importer in addition a falling AUD can
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stimulate local production by making
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Australian producers
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more competitive in price against those
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foreign imports the Australian importer
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may have competitors that source goods
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from these cheaper domestic sources
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providing it with competitive exposure
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an Australian exporter may sell goods
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quoted in a foreign currency upon
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receipt of the foreign currency it will
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need to sell the foreign currency and
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buy Australian dollars when the
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Australian dollar rises or appreciates
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then the Australian exporter receives
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less Australian dollars from
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the foreign currency conversion for
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example assume the sale of an exported
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good is two thousand US dollars if the
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exchange rate is 80 US cents then the
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exporter receives two thousand five
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hundred Australian dollars if the AUD
[150]
rises to eighty five US cents this
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reduces the amount received two two
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thousand three hundred and fifty three
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Australian dollars this highlights the
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transaction exposure for the exporter
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note that if the exporter sells the
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goods in Australian dollars a rising AUD
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will mean that it costs more for the
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foreign purchaser to buy the same amount
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of goods while the exporter may not have
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transaction exposure in this situation
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keep in mind that the foreign purchaser
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may look to buy the goods from another
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source highlighting the potential for
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competitive exposure consider the
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situation where an Australian
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organisation where the AUD as its
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functional currency has a borrowing
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denominated in a foreign currency it
[198]
needs to service the ongoing interest
[200]
payments and repay the loan at maturity
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and the Australian dollar value of these
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payments will be affected by foreign
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exchange movements in addition during
[211]
the term of the loan the organization
[214]
reflects the value of the loan as a
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liability on its balance sheet this
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value will fluctuate with movements in
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the foreign exchange rate if the foreign
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borrowing is 1 million US dollars and
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the exchange rate is 80 US cents the
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organization has a liability of 1.25
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million Australian dollars however if
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the Australian dollar weakens to 75 US
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cents the value of this liability
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increases to 1.3 3 million Australian
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dollars this highlights the impact of
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the organization's translation exposure
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that is converting the value of a
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foreign currency denominated asset or
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liability back to the functional
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currency identifying foreign exchange
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exposures is an extremely important
[264]
component of an organisation's
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financial risk management framework
[269]
these exposures can take the form of
[272]
transaction exposure translation
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exposure and competitive exposure
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