Slide 17 of
32
Slides developed by Jeff Madura, with
additions and enhancements by Tim Richardson
Transaction Exposure
uCurrency
correlation, example
–German mark and Swiss franc increase in value
FMNC X has net inflow
exposure from Germany
FMNC
Y has net outflow exposure in Germany with similar sized inflow exposure from Switzerland
–DM and
SF have a correlation of 94 percent
–Net
transaction exposures
FMNC X maintains currency
risk exposure
FMNC Y has offsetting DM
and SF exposure