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Company AAB is located in Country A with the A$ as its functional currency It plans to grow by acquisition and has identified Company BBA as a potential takeover candidate Company BBA is located in Country B with the BS as its functional currency.
The directors of Company AAB are concerned about foreign currency risk if the acquisition goes ahead
Which of the following will be most effective in reducing Company AAB's exposure to translation risk if the acquisition is successful1?
Suggested Answer: D
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12 comments · newest first
ED
Edwin
2 months ago
B could work too. Multi-currency accounts help manage cash flow.
WI
Wilbert
2 months ago
I prefer A. Using equity avoids debt and currency issues.
CH
Chandra
2 months ago
I think D is the best option. Forward contracts can lock in rates.
JI
Jina
2 months ago
C) Borrowing in BS's sounds risky to me!
VI
Vince
2 months ago
B) Multi-currency accounts are useful, but not the best option here.
PA
Pamella
2 months ago
Wait, can forward contracts really cover all risks?
LA
Larae
3 months ago
D) Totally agree, forward contracts are the way to go!
CA
Carla
3 months ago
A) Financing with equity in A$ could help!
CR
Craig
3 months ago
Setting up a multi-currency account sounds like a good idea, but I’m not sure if it really addresses translation risk specifically.
SC
Scot
3 months ago
I feel like financing with equity in A$ might reduce risk, but I wonder if it’s the most effective compared to the other options.
WE
Werner
3 months ago
I think using forward contracts could be effective since they can lock in exchange rates, but I’m not completely confident about how they work in this context.
GE
German
3 months ago
I remember we discussed translation risk in class, but I'm not entirely sure which option would be the best for Company AAB.