International Corporate Finance Evaluation
It is not that an unexpected increase or decrease in the foreign currency may not be profitable and will always cause a loss. But this entire uncertainty hampers businesses and overall economic growth.Forward or future market concerns the delivery of the exchange rate to be delivered within 3 days or more. Here the banks will use the forex rate on which they are willing to buy or sell the currency within a month or more after the transaction.3It can be seen that due to the volatile and unpredictable nature of the forex markets during times of political or economic crisis both these markets carry considerable risk for multinational firms. The preceding discussion in the other sections will assess the types of strategies that can be used to avoid these risks and their feasibility in the short and long term.There are a number of risks facing VFM right now in terms of the foreign exchange and political risks involved here. These can Credit risk, Liquidity risk, Solvency risk, Operational risk, Market risk, and Interest rate risk. (Aharony, 1986. Risks like operational risks (which have been defined by the Basel Committee(Basel II) arise from ‘inadequate or failed processes, people and systems or from external events’.( Hsaio 2008) .Operational Risks cover a wide category of risks that pertain to human error or technical deficiencies. (Black,1972) and are related to all other types of risk such as capital needs, inflation, concentration of revenues (by customers, products, geographies, etc.) new competitive conditions and environmental remediation obligations(reinforced by the new concept of Corporate Social Responsibility). (Black,1972). However, more serious risks pertain to losses that arise due to the failure of the obligator to perform(Credit Risk), and such losses are reported to be responsible for more than 50% of yearly business losses. (Black,1972).Today the current lending practices pertaining to credit risk management methodology have made considerable progress.