chapter  18
51 Pages

Financial strategies: Financing and currencies

The Big Mac Index serves as an introduction to the value of money as well as the impact of foreign exchange. Even a highly regarded professional trader could be wrong about the direction of a certain currency. All currency traders, international bankers, exporters, and multinational corporations realize that volatility exists in the international financial markets. For example, foreign exchange fluctuations probably cost Lufthansa AG 200 million marks in 1995. For each one-yen increase against the dollar, Nissan will lose six billion yen annually in sales and profits. Therefore, for firms with international activities, foreign exchange risk is inevitable and must be managed to keep it at a minimum.