The cash-flow-at-risk approach

问题如下：

Question An analyst gathers the following information about a multinational company's additional disclosures section of the notes for a given fiscal year:

EUR/USD is the amount of EUR per 1 USD.
EUR/GBP is the amount of EUR per 1 GBP.

The potential negative impact on earnings from exchange rate fluctuations is:

选项：

A.A.lower for USD than for GBP. B.B.the same for both USD and GBP. C.C.higher for USD than GBP.

解释：

Solution

1. Incorrect because the cash flow at risk is higher for the USD exposure (being €40 million) compared to GBP exposure (being €30 million).

2. Incorrect because the cash flow at risk is higher for the USD exposure (being €40 million) compared to GBP exposure (being €30 million).

3. Correct because the cash flow at risk is higher for the USD exposure (being €40 million) compared to GBP exposure (being €30 million). Principal exposures are compared to all hedges that are in place. The net cash flow surplus represents an uncovered risk position. The cash-flow-at-risk approach involves allocating the impact of potential exchange rate fluctuations to operating cash flows on the basis of probability distributions.

Multinational Operations

• analyze how currency fluctuations potentially affect financial results, given a company’s countries of operation