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Corporations operating in a global economy face currency risks that stem from fluctuating exchange rates. When a company’s
sales currency differs from its cost currency, profit margins can be impacted by volatile exchange rates that cause, for example,
differences between the settlement price of a resource and the ultimate invoice price. To minimize and protect against such risks,
many firms hedge, counterbalancing one transaction against another.Wharton’s International Exposure Management and Valuation (IEMAV) simulation puts students in the role of an international Chief Financial Officer and presents them with multiple scenarios, each highlighting a different source of cash flow currency risk. For each scenario, the student (or group of students) receives background information about a company and the specific risks faced. Using equations, sample exchange rates, or historical data (depending on the scenario), participants determine how to use the available hedging tools.
Because the exercises are complex, IEMAV provides students with an opportunity to submit practice strategies and review the results before uploading their final answers.