Short questions on risk management and measures of exposure.

Traditionally, the analysis of foreign exchange exposure, risk, and hedging has been the most important topic in international business finance.

a. What are the three measures of exposure traditionally studied, and what are the advantages and disadvantages of using each one?

b. What measure or measures of exposure should managers focus on? Should managers hedge exposures?

Assessing the political risk and ways to manage the political risk.

You are the chief financial officer of a small U.S. firm thinking of undertaking its first foreign investment. The project is in a developing country, and you are concerned about political risk. How would you go about assessing the political risk? If your firm undertakes the project, how would you manage political risk (before any incidents occur)? If your firm undertakes the project and a political incident occurs, how would you manage the incident?