ACCT 310 UMGC Week 5 Foreign Exchange Rates Paper

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Accounting

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University of Maryland Global Campus

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ACCT 310

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Juan Varela

Week 5 Assignment 2

September 24, 2019

Mr. Dennis Mcguckian

The more business you do outside the United States, the more currency instability you

should keep in mind. There are numerous ways that Striking fur can utilize to protect itself against

losses due to the increase in foreign exchange rates. To begin, Striking fur must understand and

managers should evaluate the status of the company. It would be ideal if Striking fur found a partner

within the United States to avoid exchange rates. Second, another way to protect itself from currency

exchange rates is to create more contracts to act as insurance. Third, should look into third parties

and subject matter experts that monitor the markets to provide with tips and timelines to better

protect you from unprecedented currency rate fluctuations. There are many tools available to assist

and prevent cash-flow losses.

First, according to Elizabeth Smith, the biggest currency risks occur when your costs are in

one currency and your revenue is in another. The more the international transactions made, the

higher the risks. These types of international transactions and business will expose your company to

currency fluctuations that can damage your company’s short-term cash flow. (Smith, 2018) If for

whatever reason the Canadian dollar rises more than the U.S. dollar, you will increase your overall

costs compared to your revenue. In which case, at that point might look for a domestic partner to

conduct business with. That way you will for the most part eliminate the currency risks. To counter

that point, however, suppliers within the U.S. will likely be more expensive compared to Canada, or

suppliers overseas.

Secondly, the Striking fur should hedge with forward contracts. Forward contracts are

agreements to buy foreign currencies at a set exchange rate through foreign banks. By creating

these types of contracts, you fix prices and guarantee that your future import prices will not increase,

however, there are drawbacks. By creating forward contracts, and fixing your future prices, you may

just hurt the company’s savings. If you buy at a fixed price and the currency fixes in your favor, you

must still honor the contract and buy at the higher negotiated prices. When creating future contracts,

you must research and anticipate the market fluctuations to make the best possible future contracts

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Juan Varela Week 5 Assignment 2 September 24, 2019 Mr. Dennis Mcguckian The more business you do outside the United States, the more currency instability you should keep in mind. There are numerous ways that Striking fur can utilize to protect itself against losses due to the increase in foreign exchange rates. To begin, Striking fur must understand and managers should evaluate the status of the company. It would be ideal if Striking fur found a partner within the United States to avoid exchange rates. Second, another way to protect itself from currency exchange rates is to create more contracts to act as insurance. Third, should look into third parties and subject matter experts that monitor the markets to provide with tips and timelines to better protect you from unprecedented currency rate fluctuations. There are many tools available to assist and prevent cash-flow losses. First, according to Elizabeth Smith, the biggest currency risks occur when your costs are in one currency and your revenue is in another. The more the international transactions made, the higher the risks. These types of international transactions and business will expose your company to currency fluctuatio ...
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Tags: currency instability Foreign exchange rates currency exchange rates currency rate fluctuations cash flow losses