Discuss why a company should calculate its time-specific net cash-flow exposures in each foreign currency rather than simply listing all foreign currency transactions in order to assess its FX risk exposure.

Posted: January 10th, 2022

Discuss why a company should calculate its time-specific net cash-flow exposures in each foreign currency rather than simply listing all foreign currency transactions in order to assess its FX risk exposure. (LO 17.2)

FX risk may be said to be two-directional. Within the context of a company borrowing in the international capital markets, explain the two-directional nature of FX risk, having regard to the ongoing cash flows associated with the debt facility. (LO 17.2)