Question 1. It is, generally, not possible to completely eliminate both translation exposure and transaction exposure. In some cases, the elimination of one exposure will also eliminate the other. But in other cases, the elimination of one exposure actually creates the other. Discuss which exposure might be viewed as the most important to effectively manage, if a conflict between controlling both arises. Also, discuss and critique the common methods for controlling translation exposure.
Question 2. Inflation can affect a company's purchasing power. If inflation is expected to be high, a company could modify its practices in order to maintain capital and hedges can be used to minimize foreign exchange exposure. Do you agree?
Question 3. If the gains or losses are not offset, a gain or loss will be recognized.Financial controls should be put in place to monitor the risk. Risk monitoring systems can be used to monitor the effectiveness of hedges. Do you agree?