国际金融（原书第16版） -IM-Wrd Chapter 12 Operating Exposure

Eiteman/Stonehill/MoffettMultinationalBusinessFinance,SixteenthEdition

Chapter12:OperatingExposure

Copyright©2023PearsonEducation,Inc.

Copyright©2023PearsonEducation,Inc.

Copyright©2023PearsonEducation,Inc.

Chapter12

OperatingExposure

12.1 ExposureDefinitions.Defineoperatingexposure,economicexposure,andcompetitiveexposure.Canyouprovideanyinsightsintowhatmaybebehindtheuseofthedifferentterms?

Allarenamesforthesameexposure.Iftheyaredifferent,itmustbeonlyinasubtletyofmeaningbytheuser.Operatingexposure,alsoreferredtoaseconomicexposure,competitiveexposure,orstrategicexposure,measuresanychangeinthepresentvalueofafirmresultingfromchangesinfutureoperatingcashflowscausedbyanyunexpectedchangeinexchangerates.

Economicexposureemphasizesthattheexposureiscreatedbytheeconomicconsequencesofanunexpectedexchangeratechange.Economicconsequences,inturn,suggeststhattheimpactisduetotheresponseofexternalforcesintheeconomy,ratherthan,say,somethingdirectlyunderthecontrolofmanagement.Competitiveexposuresuggeststhattheconsequencesofanunexpectedexchangeratechangeareduetoashiftinthecompetitivepositionofafirm,vis-á-visitscompetitors.

12.2 OperatingExposureversusTranslationExposure.Whatdoyouseeastheprimarydifferencebetweenoperatingexposureandtranslationexposure?Wouldthishavethesamemeaningtoaprivatefirmasapubliclytradedfirm?

Operatingexposureisfarmoreimportantforthelongrunhealthofabusinessthanchangescausedbytransactionortranslationexposure.Ontheotherhand,transactionexposurecananddoeshaveimmediateeffectsonthefirm’sincomestatementandthereforeearnings.Ifapubliccompany,changesinthoseearningswillhaveaninstantaneousimpactoftheirshareprice.

However,operatingexposureisinevitablysubjectivebecauseitdependsonestimatesoffuturecashflowchangesoveranarbitrarytimehorizon.Thus,itdoesnotspringfromtheaccountingprocessbutratherfromoperatinganalysis.Planningforoperatingexposureisatotalmanagementresponsibilitydependingupontheinteractionofstrategiesinfinance,marketing,purchasing,andproduction.

12.3 UnexpectedExchangeRateChanges.Whydounexpectedexchangeratechangescontributetooperatingexposure,butexpectedexchangeratechangesdonot?

ExpectedchangesinforeignexchangeratesshouldbeincorporatedinallfinancialplansofanMNE,includingbothoperatingandfinancialbudgets.Hencethearrivalofanexpectedexchangeratechangeshouldnotbeasurpriserequiringalterationofexistingplansandprocedures.Unexpectedexchangeratechangesarethosethatcouldnothavebeenanticipatedorbuiltintoexistingplans.Henceareevaluationofexistingplansandproceduresmustbeconsidered.

Onemustnotethatbecausebudgetsarebuiltaroundexpectedexchangeratechanges,theunexpectedexchangerateisthedeviationfromtheexpectedexchangerate,ratherthanthedeviationfromtheactualexchangerateatthetimeabudgetwasprepared.

12.4 TimeHorizon.Explainthetimehorizonsusedtoanalyzeandmeasureunexpectedchangesinexchangerates.

Operatingexposureisinevitablysubjectivebecauseitdependsonestimatesoffuturecashflowchangesoveranarbitrarytimehorizon.Thusitdoesnotspringfromtheaccountingprocessbutratherfromoperatinganalysis.Planningforoperatingexposureisatotalmanagementresponsibilitydependingupontheinteractionofstrategiesinfinance,marketing,purchasing,andproduction.

12.5 StaticversusDynamic.Whatareexamplesofstaticexposuresversusdynamicexposures?

Measuringtheoperatingexposureofafirmrequiresforecastingandanalyzingallthefirm’sfutureindividualtransactionexposurestogetherwiththefutureexposuresofallthefirm’scompetitorsandpotentialcompetitorsworldwide.Exchangeratechangesintheshorttermaffectcurrentandimmediatecontracts,generallytermedtransactions—staticinnature.Butoverthelongerterm,aspriceschangeandcompetitorsreact,themorefundamentaleconomicandcompetitivedriversofthebusinessmayalterallcashflowsofallunits—dynamicinscope.

12.6 OperatingversusFinancingCashFlows.Accordingtofinancialtheory,whichismoreimportanttothevalueofthefirm,financingoroperatingcashflows?

ThecashflowsoftheMNEcanbedividedintooperatingcashflowsandfinancingcashflows.Operatingcashflowsarisefromintercompany(betweenunrelatedcompanies)andintracompany(betweenunitsofthesamecompany)receivablesandpayables,rentandleasepaymentsfortheuseoffacilitiesandequipment,royaltyandlicensefeesfortheuseoftechnologyandintellectualproperty,andassortedmanagementfeesforservicesprovided.Thesearethecashflowsassociatedwiththeconductofbusiness—andthereforearethesourceofvalue.Financingcashflows,suchasthecashflowsassociatedwithdebtandequity,areaccordingtofinancialtheorynotassociatedwithvalueandthereforeofonlysecondaryimportance.

12.7 MacroeconomicUncertainty.Explainhowtheconceptofmacroeconomicuncertaintyexpandsthescopeofanalyzingoperatingexposure.

Macroeconomicuncertaintyisthesensitivityofthefirm’sfuturecashflowstomacroeconomicvariablesinadditiontoforeignexchange,suchaschangesininterestratesandinflationrates.

12.8 StrategicResponse.Theobjectiveofbothoperatingandtransactionexposuremanagementistoanticipateandinfluencetheeffectofunexpectedchangesinexchangeratesonafirm’sfuturecashflows.Whatstrategicalternativepoliciesexisttoenablemanagementtomanagetheseexposures?

Thekeytoeffectivepreparationsforanunexpecteddevaluationisanticipation.Majorchangestoprotectafirmafteranunexpecteddevaluationareminimallyeffective.Possibilitiesincludediversifyingoperations,includingsourcing,manufacturing,andmarkets,anddiversifyingfinancing.

12.9 ManagingOperatingExposure.Thekeytomanagingoperatingexposureatthestrategiclevelisformanagementtorecognizeadisequilibriuminparityconditionswhenitoccursandtobeprepositionedtoreactmostappropriately.Howcanthistaskbestbeaccomplished?

Ifafirm’soperationsarediversifiedinternationally,managementispre-positionedbothtorecognizedisequilibriumwhenitoccursandtoreactcompetitively.Considerthecasewherepurchasingpowerparityistemporarilyindisequilibrium.Althoughthedisequilibriummayhavebeenunpredictable,managementcanoftenrecognizeitssymptomsassoonastheyoccur.Forexample,managementmightnoticeachangeincomparativecostsinthefirm’sownplantslocatedindifferentcountries.Itmightalsoobservechangedprofitmarginsorsalesvolumeinoneareacomparedtoanother,dependingonpriceandincomeelasticitiesofdemandandcompetitors’reactions.

Recognizingatemporarychangeinworldwidecompetitiveconditionspermitsmanagementtomakechangesinoperatingstrategies.Managementmightmakemarginalshiftsinsourcingrawmaterials,components,orfinishedproducts.Ifsparecapacityexists,productionrunscanbelengthenedinonecountryandreducedinanother.Themarketingeffortcanbestrengthenedinexportmarketswherethefirm’sproductshavebecomemorepricecompetitivebecauseofthedisequilibriumcondition.

12.10 Diversification.Howcanamultinationalfirmdiversifyoperations?Howcanitdiversifyitsfinancing?Doyoubelievetheseareeffectivewaysofmanagingoperatingexposure?

Worldwidediversificationineffectprepositionsafirmtomakeaquickresponsetoanylossfromoperatingexposure.Thefirm’sowninternalcostcontrolsystemandthealertnessofitsforeignstaffshouldgivethefirmanedgeinanticipatingcountrieswherethecurrencyisweak.Recognizingaweakcurrencyisdifferentfrombeingabletopredictthetimeoramountofadevaluation,butitdoesallowsomedefensiveplanning.

Ifthefirmisalreadydiversified,itshouldbeabletoshiftsourcing,production,orsaleseffortfromonecountry/currencytoanotherinordertobenefitfromthechangeinthepost-devaluationeconomicsituation.Suchshiftscouldbemarginalormajor.

Unexpecteddevaluationschangethecostoftheseveralcomponentsofcapital—inparticular,thecostofdebtinonemarketrelativetoanother.Ifafirmhasalreadydiversifieditssourcesoffinancing,thatis,establisheditselfasaknownandreputablefactorinseveralcapitalmarkets,itcanquicklymovetotakeadvantageofanytemporarydeviationsfromtheinternationalFishereffectbychangingthecountryorcurrencywhereborrowingsaremade.

12.11 ProactiveManagement.Operatingexposurescanbepartiallymanagedbyadoptingoperatingorfinancingpoliciesthatoffsetanticipatedforeignexchangeexposures.Whatarefourofthemostcommonlyemployedproactivepolicies?

Thefourmostcommonproactivepoliciesandabriefexplanationarematchingcurrencycashflows,risk-sharingagreements,back-to-backloans,andcurrencyswaps.

12.12 MatchingCurrencyExposure.Explainhowmatchingcurrencycashflowscanoffsetoperatingexposure.

Theessenceofthisapproachistocreateoperatingorfinancialforeigncurrencycashoutflowstomatchequivalentforeigncurrencyinflows.Oftendebtisincurredinthesameforeigncurrencyinwhichoperatingcashflowsarereceived.

12.13 RiskSharing.Analternativearrangementformanagingoperatingexposurebetweenfirmswithacontinuingbuyersupplierrelationshipisrisksharing.Explainhowrisksharingworks.

Contracts,includingsalesandpurchasingcontracts,betweenpartiesoperatingindifferentcurrencyareascanbewrittensuchthatanygainorlosscausedbyachangeintheexchangeratewillbesharedbythetwopartiesifthespotratemovesoutsideofwhatthepartiesjointlyconsidera“normalrange.”

12.14 BacktoBackLoans.Explainhowbacktobackloanscanhedgeforeignexchangeoperatingexposure.Wouldfirmshaveanyspecificworriesabouttheirpartnerinaback-to-backloanarrangement?

Twofirmsindifferentcountrieslendtheirhomecurrencytoeachotherandagreetorepayeachotherthesameamountatalaterdate.Thiscanbeviewedasaloanbetweentwocompanies,independententitiesorsubsidiariesinthesamecorporatefamily,witheachparticipantmakingaloanandreceiving100%collateralintheother’scurrency.Aback-to-backloanappearsasbothadebt(liabilitysideofthebalancesheet)andanamounttobereceived(assetsideofthebalancesheet)onthefinancialstatementsofeachfirm.

12.15 CurrencySwaps.Explainhowcurrencyswapscanhedgeforeignexchangeoperatingexposure.Whataretheaccountingadvantagesofcurrencyswaps?

Intermsoffinancialflows,thecurrencyswapisalmostidenticaltotheback-to-backloan.Howeverinacurrencyswap,eachparticipantgivessomeofitscurrencytotheotherparticipantandreceivesinreturnanequivalentamountoftheotherparticipant’scurrency.Nodebtorreceivableshowsonthefinancialstatementsasthisisinessenceaforeignexchangetransaction.Theswapallowstheparticipantstouseforeigncurrencyoperatinginflowstounwindtheswapatalaterdate.

12.16 HedgingtheUnh