1. What is meant by foreign exchange risk? What specific problems does foreign exchange present in an organization?

How may an organization that needs Euros in 6 months protect itself from currency fluctuations? Foreign exchange risk is the possibility of value changing on an investment because of a change in the foreign exchange rate (Titman, Keown, & Martin, 2011). When making an international investment and money is converted to a different currency any value changes will either decrease or increase the value of the currency. For example, if one had to convert a dollar to a euro one would have 0.73 Euro for each 1 dollar. The buying power of the dollar is decreased. However, if that value gap further decreased later to 1 dollar to 0.6 euro the investment would deliver a negative return. There are many variables that may cause problems with foreign exchange. Theres a political risk potential in some countries that may have certain political instabilities. Inflation and local economic downturns and upturns affect the value of currency as well. If an organization required exchanging dollars to euros in 6 months it would want to watch the value of the euro in regards to other currencies. Say the Dollar to Euro exchange is 1- 0.73, the exchange rate for the Dollar to the Yen is 1 101.68, and the Euro to Yen exchange is 1 138.47 now. If the Dollar to Yen changes to 1 102.45, the Dollar to Euro remains constant at 1 0.73, and the Euro to Yen remains at 1 138.47 one would bet best to exchange the Dollar for Yen and then the Yen to the Euro. Monitoring these fluctuations and timing the exchange perfectly will increase the organizations ability to make a profit. References Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial Management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.

2. What is globalization? Why has globalization become so important during the last 10 years? How will globalization change financial management in the future? Globalization is the melding of business and investments outside of domestic and national markets into that of the global markets (Investopedia, 2013). This brings markets together on a global scale of trade. Technological advances have grown globalization to become a major part of business over the last 10 years. It has become a major part of business even for those that do not trade in foreign markets as values and prices fluctuate on a domestic scale in relation to the global market. The popularity of the internet and increasingly better and faster communication capabilities makes travel less of a requirement to invest in foreign markets. Changes in financial management will continue to come with better communications and increased interest in the global market. Knowledge base requirements will change to incorporate a more global understanding thereby leaving some students of financial management ill prepared for the new market. References Investopedia (2013). Retrieved from www.investopedia.com. Titman, S., Keown, A. J., & Martin, J. D. (2011). Financial Management: Principles and applications (11th ed.). Upper Saddle River, NJ: Pearson/Prentice Hall.