International money and finance Essay Example | Topics and Well Written Essays - 1500 words

International money and finance - Essay Example Brewin Dolphin has functions in the UK, Republic of Ireland and Channel Island. For such transnational companies, foreign exchange exposure can be categorised as translational and transactional risks. Transactional risk arises when a firm faces possibility of monetary loss from its business transactions that has been undertaken in foreign currencies. The company is an international investment firm and consequently is involved in deals that require continuous purchase and selling of currencies (Kelley, 2001). On the other hand, translational risk exposure arises when firms invest in foreign assets and record it in firm’s balance sheet. For minimisation of translational exposure, firms should make minimum investment in foreign assets. However, these risks are countered by multinational companies by purchasing different swaps, options, futures and forward contracts (Erb, Harvey and Viskanta, 1996). The company primarily operates in the economic environment of the UK; hence, its functional currency is pound sterling for all kind of financial reporting. However, one positive point in this regard is that the company does not have operation in multiple bases and as a result, the exchange rate exposure for the company is relatively limited. In other words, degree of currency imbalance is less for the firm (Brewin dolphin, 2013). In this regard, management of foreign exchange exposure in the UK depends considerably on restrictions on net open position of working balances of firms. Minimisation of foreign exposure is a national concern and the Bank of England has made it certain for multinational firms that the net amount of foreign currency or currency that a firm transact in should be at least 10 percent higher than the firm’s own capital (Bank of England, 2011). It was determined that the company comply with the foreign exchange policies that have been