What is an economic exhibition?
As the number of businesses participating in international markets is growing, the threat of economic exposition is also increasing. The economic exposition is the risk of business abroad. More common risks include fluctuating exchange courses, unstable governments and shaking economies. The possibility that foreign countries will not honor their debts is another factor. Another aspect is increased employees' health and safety costs. These factors affect cash flow and company earnings, but due to the long -term gainful potential of business abroad, the risks are acceptable to many businesses.
One example of the economic exhibition is if the company hits a trade agreement with a small foreign nation and this nation becomes involved in the civil war. Then there is a high probability that the country will not honor its debt obligation to business. Depending on which party wins, the permanent government could give up the previous arrangement. On the other hand, although the country does not change the hands of leaders, it couldto be burdened with the cost of renewal of the country and therefore the money to repay debts may not be available.
companies that take the risk of economic exposure, ensure risk with shares, currency or commodities. Option means that the company has the right to buy or sell the options or use them as a leverage or protection. As a lever effect, this option allows companies to control its capital in a foreign agreement. When used for protection, this option protects the company from market fluctuations. It also balances losses from economic exposure. The value of the possibility is agreed at the beginning of the company with a foreign company or government.
When the company buys into the possibility, it usually makes the original investment equivalent to the amount and the possibility to reset the duration. If the company decides not to use its possibility directly within the negotiated time frame, the possibility will expire. The possibility isLaw and not the automatic position that the company must take.
Most companies that decide to do business abroad are not in a short term. These are long -term investments that the company expects to generate decent revenues in the future. A company that is looking for a quick investment about turnover can be better provided by investing in their home country. The inherent risk of economic exposure could be too great for a rapid turnover.