let's talk about the types of currency risks exposures

"The World is Flat: A Brief History of the Twenty-first Century" a book, Thomas Friedman pointed out that global economic integration led to the so-called (A level playing field). Due to the rise of the Internet and the popularity boost by software development and innovation, the unbelievable rate of rise of capital markets including China and India, can easily achieve their own social division of labour via internet. Also, emerging countries can rival with the developed countries, which a new round of globalization that everyone can erase all national boundaries and made ​​the world flat, wow, what’s an amazing world.  

The group of global economic integration has accelerated the transformation of enterprise management defines globalization as “the growing economic interdependence of countries worldwide through increasing volume and variety of cross-border transactions in goods and services, free international capital flows, and more rapid and widespread diffusion of technology”. In order of drive forward the whole globalized economic system dominated by supranational corporate trade and banking institutions that are not accountable to democratic processes or national governments. Nowadays, domestic economic growth is not adequate fulfil shareholder anticipation. Thus, global bargain is much more complicated than domestic trading because of many additional factors, for instance, business tax, trade tariffs, embargo and especially exchange rate and so on. In regard of first risk source that foreign trading faces and currencies are always unsteadiness in the foreign exchange market, yet meaningful subset of these factors that can vary company profitably as well.

 As analysed by the BBS News and Yahoo Finance last year, it’s not difficult to seek how Japanese exporters has also been hurt by a vigorous rising Japanese yen. Numerous Japanese companies who reported profit warning, the world’s top automaker Toyota, electronics giants Toshiba and Panasonic also quoted the negative impact as well as Honda was reported a loss by poor sales in some mutual market. The top four Japanese Exporters net profit are also affected by overseas sales were hit since the strong yen, which makes products more expensive and lack of competitive to another foreign enterprise. In this case, Honda, the world’s sixth largest auto manufacturer has announced a 41% drop in quarterly profit. In 2011, Honda's global output dropped by a fifth to 2.9 million cars, slipping below 3 million for the first time in eight years.

To explore and critically appreciate these fluctuating exchange rates issues around major international volatile market. Three main risks named transaction exposure, translation exposure and economic exposure applied to explain conduct such trade each other, and the exporters must accept exposure to the risk associated with changes in currency. Increases in global trades in itself outcome policy is only accepting one role: the exposure to the relative risk combined with changes in currency. 

First of all, Transaction exposures is the risk that in the agreed transactions denominated in foreign currency transaction gain or loss that a firm with known future cash flows in a foreign currency that arises from possible changes in the exchange rate. These risks include:
 1. A spot or deferred payment for the import and export of goods or services, payment terms, the shipment of goods and services yet to collection and payment of money or labour costs, the risk of foreign exchange rate changes occur. 

       2. The international credit denominated in foreign currencies, credit and debt is not settled before the exchange rate risk. For example: a project to borrow yen, due for return of yen. The benefits of the project received the U.S. dollar. If the dollar-yen exchange rate plummeted, the project than originally planned to spend a lot of dollars in order into yen against the return of principal and interest, resulting in the loss. 

      3. Forward foreign exchange contracts to be performed, agreed exchange rate and the spot exchange rate changes due to the risks arising.

Secondly, Translation exposures also known as the Conversion Risk refers to the possibility of the amount of change of corporate balance sheets basic upon changes in foreign exchange rates and some foreign exchange capital projects. It is a carrying amount of the losses and gains, has neither actually take delivery of the actual profit and loss nor affect the report of the results of the corporate assets and liabilities. It involved a Risk of adverse effects on a firm's financial statements that may arise from changes in exchange rates.

Finally, Economic exposures occur surrounding the uncertainty in the economy, the economic entities engage in normal economic activity and the possibility of economic loss. It is a natural phenomenon in the development of the market economy. With the development of market economy, continues to expand the scale of production, speed up product updates, changes in social demands intense, economic risks have become producers and so on factors operators must face up to the problem.

Exposed in such global risky market, why domestic corporates will still want to ship their products outside, join in the international stage? The answer is simple: profit maximisation. In common with many corporates not prefer a global trade with tons of countries their even do not know the capital name. Whereas how to bulk up shareholder value maximisation, they have no choose to put company under risks. For now, the best solution is made trading with international bank rather than manage much different currencies in hand which costly to govern huge money pool. Some banks will consider about your company growth opportunities, financing healthy, liquidity and size, etc. to help client set up a hedge portfolio to help them build trading with only one home currency. 

Why's corporate always routinely raising finance annually?

Capital market theory assumes that efficient market. That’s why the prices change usually concurrent with changes base upon economic fundamentals, also the market prices of publicly traded stocks represent the consensus of investors to the present value of cash flows. Under this theory, company looking for a fund to maintain day to day operation probably use vary methods to arise capital. Assumed bigger company required a new capital routine annually to diversify risk of uncertainty following year, but why they must be do that in every year?

“Do not put all your eggs in single basket”, what an idiomatic phrase well describe everything might not over focus all handing resources on one investment pattern. The answer is risk, in realty, most of unavoidable risk around the world. Especially in modern economic market, after bankrupt of Lehman Brothers Holding Inc. investors as well as entrepreneur initially recognised that trusts and credits will never be the safeguard for their investment. When I start to study what is risk and which is most risky, I classified out three main categories of economic sense risk, Maturity risk, Market risk and Unique and other risk instant. First of all, Maturity risk means the risk that overall value of the particular investment may suffer floatable when changes by the general level of interest rates. Normally, company expect a long term debt in which more responsibly bargain the levels of interest return rates since Yield To Maturity (YTM) become measure as maturity. For instant, U.S.A. government always viewed as a benchmark for risk-free rates which comparative tool to calculate. But, as long as the term of debt issue, the much of sensitivity to alter by market uncertainly factors interaction form uncertainly of future inflation level. Moreover, a non-diversifiable risk named market risk also might not foresee next day uncertainly of future rewards. Because in general, systematic risk are cannot wipe out by well-diversified portfolio. A classic demonstration via Capital Asset Pricing Model (CAPM) easy specifically estimates hereafter flow. Using expected premium rate of return to show that market risk difficult or even the possibility to diversify. Measure sensitivity to the market risk as Beta can understand the stock volatility in whole market, most important reveal the relationship between market and integrated trend. We can simply see a number to overview exchange market tendency, but most of the figure is deeply rely on beta not consider about future and general economic condition. The last one I concern though unique and other risk are also residual risk. Both of uncertainty of expected returns and arising from unsystematic characteristics like another risk and the main different is market inefficiency cause by liquidity problems. In publicly traded stocks market represent all investors seek liquidity in capital.

Greggs the UK's biggest bakery chain, multimillion pound Tyneside-based firm which own more than 1,540 stores around UK downtowns, but also plan to open at least 80 new stores are well on track. What a massive local firm, and I am pretty interest in their capital structure, how can they keep expand their map and renewal their stores as well as a new facility on Tyneside?

Found graphic from Financial Times, surprisingly only one year (2008) recorded £2.4M and none at all in other years. The D/E ratio incredibility remained at 0.00, current ratio and quick ratio are also in range of health level. It’s not possible to believe a bigger firm like this can fully capital by equity. Within this case, equity is more suitable funding method to adopt, it is because Greggs already got huge economic size fit London Stock Exchange requirement to list, a health statement benefited into public financial statement. Even IPO or public issue are costly, but greater in reputation is given. Furthermore, without any obligation pay any dividends or just fulfil most of shareholders hopes, pay the minimum amount dividend whatever profit current year, profit-sharing scheme is not promised. Thus, dividends payment cannot reduce taxable payment that’s why declares dividends calculated by after-tax earnings. Additionally, the firm carry out majority management right keep in hand.

Likewise, I also recommend Greggs might apply issue a debt for long-term funding. Since I study few years of Greggs annual report, a large measure working capital come from previous year retained earnings. If any problem issued cause that year not so much profitability like pastime, capital liquidly will face a warning alarm. In case that predicament comes true, then an urgent funding maybe necessary arise in temporary. Weighted Average Cost Of Capital (WACC) remix debt might be an inexpensive, low risk way to solve this. But the way, Greggs is a great finance control company seems as an example to other firms overreach relies upon short-term and long term misapply.

The stock market – Investment or gambling?

Benefited by innovation information technology meliorate after 1980s, everybody can sit at home and press a click easily receive vary information what people wants. Save time, money, communication and the importantly is without delay. Look back previously when peoples rarely got information from newspaper, their insight just be updated by daily or even weekly. If there are any significant financial information happened or will be publish later, they probably as an ignorance guys. Totally no ideas anything take place on outside world. Fortunately, in modern times, investors can keep trading via computer. That’s pretty leap forward for individual investors, they can monitor worldwide stock market round the clock like a watchman, moreover, not necessary pay exorbitant agency fee under stockbroker.

Almost of every entrepreneur also has a dream that have capacity to build up own success business and opportunity for further growth. Stock market provide excellent platform to collect capital as well as improve the standing of the concern and its products. What an ideal place for them. In early February, Mark Zuckerberg who Facebook CEO cannot resist the allure of advantage. Disclosed that seek for a raise £3.16bn by initial public offering (IPO). Facebook, world's largest social networking site just used eight years to reach top four in internet giant.

All epic win contribution by Mark Zuckerberg, so that no one will judge his decision. And he Mark Zuckerberg said that continuing to run the company for users, for employees, not for shareholders and so on. In retrospect, online games maker Zynga sell shares to their public in December 2011. But find out result is immediately chopped down below its asking price on the first day of trading. Seems like online firms listed shares to stock markets is a doing something venturesome. But the lucky ones who can become instant multi-millionaires and still able to hold on to the businesses they started as well as to run them into much ways as before. Facebook flotation plans are an investment plan or just a gambling game?

Nowadays, our brilliant economy world all depends upon stock market which a good and well-run exchange system channels our money into. Market share price is response sensitively, once relevant information publishes will attract every investor make a sell out or buy back decision. As above I take about, fast information transmission age let economists find a theory named as Efficient Capital Market Hypothesis(ECMH) which idea that the stock market is informationally efficient and that this leads to allocative efficiency is probably an old on.

At 10 February 2012, Barclays, the UK's fourth largest bank by market value has reported a 3% fall in profits to £5.9bn for last year. The Chief executive Bob Diamond, clam that losses on bad loans fell by a third from 2010 to £3.8bn. The adjusted return on equity was 6.6% for the year, down from 6.8% in 2010 and well below its target of 13%, furthermore, The average bonus payout for a Barclays' employee fell 21% year-on-year to £15,200 shown that Barclays Bank was really not so satisfactorily to anybody. We can clearly see that the price fell down from 23.37 to 23.23 prior to exchange market open. This is typically the semi-strong form that share prices adjust immediately and for new information as publicly available. Few second reflect all publicly available information on price, no one can consistently over perform the stock market and earn abnormal returns. Invariably, this evidence was a textbook example, we can see that over 10 thousands transfer volume at 9 February before close market. Someone recognize the existence of inside information and that those in possession of it can outperform the stock market. But, most of investor cannot make any abnormal return and interpreted as the key change in the share price of market caused by this bad news.

As a small individual investor, the only can do is trust the mechanism underpinned by government and stock exchange group. To control ECMH that for balancing market equilibrium. Bear in mind, odds of winning of £1m from an initial £1 bet is only 1 in 2m (info. from British Columbia Lottery Corporation’s website www.bclc.com). As finance studied students, all we know that investment must be take some risk unpreventable, short term investment is more like speculation, not suitable for anyone cannot bear risk; but a long term investment probably can earn dividends also can though price rise to against market inflation. My point of view to answer the question is do research before invest, use our expertise as we learnt to seek out the portfolio return rate over than average. I think this can get much chance than a gamble.

Safeguard of shareholder wealth

Acquisitions are a major vehicle for mobilizing corporate resources to deliver value, but frequently end up destroying rather than creating value. Software patents are really inside the high-technology realm, not only applied for neither own various products nor protect future benefit. The valid patents are not offered for sales in countries where the sales of such products constitute patents infringement and the liability for patents breach is exclusive at buyers’ risk. In order to prevent chain prosecution for other competitors, maximally enhance numinous patents are useful artifice as well as safeguard shareholder wealth against continuous litigate. Moreover, a victory from patent battle can allow the company to issue a sales limitation or ban of their rivals, either constrain the losing party to pay huge licence fees instead.

As reported by the BBC News at January, Intel announced the buys RealNetworks' patents and video coding technology. During whole transactions, over 170 patent applications and a commitment to co-develop and share RealNetworks' video encoding software to maintain Intel drawback: software and media. After success acquisition, Intel planned acquires all foundational media code and other patents which company needs. “Expanding Intel's diverse patent portfolio and strengthening our focus on innovation in new markets" said by company spokeswoman. Nevertheless, competitors like Motorola Mobility, Apple, telecom, Google and so on are feasted their envious eyes on the RealNetwork's main product included Real One Player® and video technologies. By purchasing part of RealNetwork's library Intel buys itself protection against claims from other firms and also can potentially block rivals using the same techniques. There are example for massive purchased patents, in August Google agreed to buy Motorola Mobility and its 23,500 patents for $12.5bn. The search firm also acquired close to 1,200 patents from IBM. Recently, many analysts also put much emphasis on their research that indicates how many intellectual properties the high technology company are the critical value for measure future development.

As I mentioned above, intellectual properties are the core assets for high-tech developer and new patents input can generate more and more innovative technology provided just the catalyst the needed. "Intellectual property is still a massively important commodity and there are global consumer electronics titans fighting each other in a cutthroat business," said Ben Wood, director of research at the consultants CCS Insight. Thus, purchasing patents will be defined as variant way of investment which abnormal sense than traditional company will clarify as. "There is still real value and significant strategic advantage to be claimed by striking careful and shrewd deals in the hi-tech sector," said Jonathan Radcliffe, the patent lawyer. This "investment" decision must require close integration of strategic and financial analysis. In my opinions, a strategy investment decision is a major outlay to increase the markets proportion or defended as a competitive position with continuous generate long term income.

Every coin has a flip side, the gigantic patents holder Kodak filed for bankruptcy protection recently. The 133-year-old firm has struggled to keep up with competitors who were the pioneer advocate to change to the digital age. But, Antonio Perez, Kodak's chairman and chief executive despise carryon challenger. Over focus all income basic upon selling film, then the digital camera came along and not realise the full digital era already coming. Technology developing too faster than whatever you imagine. Only took few decade, owned over thousand patents still cannot salvage Kodak’s hereafter.

Each company have to made multitudinous difficult decisions at every day. Each decisions whatever magnitude, strategic investment decisions are also the heart of shareholder value management. They must take own responsibly to all shareholders before making a wrong mistake that cannot be remedy. Think about how many impact on competitive positing could be influence and the key uncertainties for future alignment both within acquisition process.

Undoubtedly, every company running business is not voluntary. The equity money comes from each shareholders need to bear on it. In short, Kodak illustrate a bad example for holding patents precedent provided indicates that the quantity of how many patents owned are not adequate when a new revolution come and how Intel do not let such a little acquisition puff them up. The reason for this is if the company over arrogant could result the same calamity like Kodak. Keep innovation and never stop creative are the only solution to emulate the leadership in semiconductor chip maker industry. Shareholder value is an absolutely critical concept in the modern management so company must spare no effort to maximise the shares wealth as well as fulfil each shareholders satisfaction.