F - Treasury and advanced risk management techniques

Question 1

What are some possible benefits of a share repurchase scheme?

Answer 1

Choice available to shareholders
Contains transaction costs
Reduces tax liabilities
Increases the earnings per share and ultimate share price
Seen as a positive signal and further increases share price

Question 2

What are the three exchange rate risk exposures?

Answer 2

Economic - long term in nature, natural hedge more suitable, relocation, cheaper inputs

Translation - matching most efficient, efficient market assumption, impact on analytical trends/ratios

Transactional

Question 3

What are some options used when hedging against foreign exchange transaction risk exposure?

Answer 3

Lead and lag
Money market hedge
Natural hedge - set up subsidiary
Maintain foreign account and remitting when favorable