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By Enzio Von Pfeil

This booklet exhibits its reader easy methods to get the proper currency--and no longer how one can get the foreign money correct, hence averting sizeable forex possibility within the first place.

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One of these may regularly have to purchase Swiss francs to. finance various imports. If it manages its currencies totally independently of either its parent or the other subsidiary, it will purchase Swiss francs on a recurring basis. The other subsidiary, however, may be permanently long of that currency. Being also independent, it will sell Swiss francs on a recurring basis. This segregated approach by its two subsidiaries will involve the corporation unnecessarily in an overall currency risk and in dealing costs, represented by bid/offer spreads.

Analysis shows that roughly 50 per cent of the guilder price movements in oil-related chemical outputs are attributable to changes in the Dutch guilder/dollar exchange rate. A change in the Dutch price of one of these outputs will thus strongly reflect changes in exchange rate levels. So even if no obvious linkage exists between the guilder prices and currencies, the interaction is very pronounced. As we have seen, there are a variety of ways in which a company can become involved internationally.

By Definitions of Currency Risks 23 segregating its inflows from its outflows, the traditional company would declare that it has currency risk each time it receives Deutschmark revenues, since it must sell them and buy yen. That same firm would also say that it has currency risk each time a Deutschmark payable arises, since it must now sell yen to procure the necessary Deutschmarks. This approach is incorrect. The company is not recognising the fact that its only risk is that of timing - of Deutschmark inflows occurring before Deutschmark outflows.

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