Mass Media and Younger Generation Essay

The media can definitely change your perception of intimacy, as well as alter your ability to be intimate. As the media displays false images of the human body and makes false descriptions of what humans desire sexually. There are too many subjects and issues to go on about here, but a small example of the two issues i mentioned before are in magazines the pictures of the models are airbrushed to display, what most call a â€Å"flawless† body and in movies and sitcoms the most desired people are medium height, and very slender and so on. Giving the receivers of this idea the false realization that’s what you have to have to be sexually attractive. which would cause embarrassment of their own bodies or thinking some thing is wrong if they are attracted to some one that’s 4 foot and heavy.Possibly leading them to involvement with someone they are not sexually attracted to and embarrassed to take their clothes off in front of. This is definitely, in my opinion, going to cause intimacy issues and is an excellent description of proof how mass media plays a role in shaping your meaning of intimacy. the mass media, including TV, radio, newspapers have a great influence on people and especially on the younger generation. It plays an important role in shaping the opinions and position of the younger generation. Argue for or against this statement. The peril from Mass media In the present, the younger generations are influenced by the mass media, including TV, radio, and newspapers. They think this is the model for them because in daily life is necessary for everyone therefore it is not unusual that it have a great influence on the people and especially on the younger generation. .It plays an important role in shaping the opinions and position of the younger generation. The younger imitate by the mass media and it has impact for younger that is impact for dressed, language, and behavior. Nowadays the younger or teen have been sensitive because the younger is the people who has been 13-18 years old and they want to find something for them that is their dream, acceptance from other people so they want to find inspiration and don’t have limited. So the mass media are important for the younger that they want to be the same the star or some thing when they think is good for them. If they were persuaded by vice maybe they will be scoundrel. Some of people are think it is unsuitable dressed. Although the younger want to be one that who are the modern of them. Some of people think it is suitable but the younger can not consider. The stars are good dress but adult think it is unsuitable. The mass media have good or bad but we do not know so we must warn you child before late time. However it has impact for family because when the younger use the mass media be the model neither it bad nor it not bad I think it is directly for the younger especially language. It was influenced by younger because when the stars are speaking, the younger are listen it I think they copy the speech from the stars if it is bad I think it is not good.

My Last Duchess and Othello: Striking Comparisons

In the dramatic form, be it monologue, dialogue or full theatrical scene, the author cannot step into the action to comment or interpret for us, as he can in a novel.   We must draw our own conclusions from what we see and hear, and this makes for powerful effects, as a character reveals him- or herself to us by what he or she says or does.   In the monologue My Last Duchess Browning misleads us with great skill before we realize that we are listening to a criminal lunatic.The dramatic force lies in the surprise we feel as the truth finally emerges.   In Act IV, scene iii of Othello there is again an agonizing irony for the viewer, who knows more than Desdemona and is of course impotent to help her.   Shakespeare works like a dentist without an anesthetic, and the pain for the audience derives from the unbearable innocence of the doomed Desdemona, who is surely something like the Duchess in Browning’s poem, helpless and bewildered in the face of a murderous insanity in her husband.Browning’s Duke sounds so sane!   He is wonderfully gracious and articulate – â€Å"Will’t please you sit and look at her?† (5).   As he tells his story he seems to weigh his words with great caution, as if he is quite free of the distorting power of anger or any other passion, and is keen to avoid any unfairness in his judgment: â€Å"She had / A heart – how shall I say? – too soon made glad† (21-2), â€Å"†¦but thanked / Somehow – I know not how – as if she ranked†¦Ã¢â‚¬  (31-2). He never raises his voice, and speaks with a measured confidence that quite takes us in.At first we might be tempted to believe that his attitudes are reasonable: â€Å"Sir, ‘twas not / her husband’s presence only, called that spot / Of joy into the Duchess’ cheek† (13-15).   His manner is restrained even as he hints at her infidelity.   The painter flattered her about her appearance, as of course he would, being a Renaissance artist totally dependent on patronage, but she was charmed by it – foolishly, the Duke suggests.   â€Å"She liked whate’er / She looked on† (23-24).   She was delighted by the beauty of the sunset, and the little tribute from the man who gave her the cherries, just as much as â€Å"My favor at her breast† (25).What he seems to be objecting to is her failure to be properly selective and aristocratic in her tastes.   This is a rather extreme sort of snobbery, but perhaps not unprecedented; we may not find it attractive, but we may accept it as a feature of a proud man. In Browning’s My Last Duchess, the murder is implied. It is not described in explicit terms as in Othello. In the lines, â€Å"Paint/Must never hope to reproduce the faint /Half-flush that dies along her throat† ,the speaker adores the ‘faint half-flush’ on his wife’s face that no paint could re-add and at th e same time leaves a slight hint that she had been throttled to death[dies along her throat].The intelligent monologue is enough to make the point overt and covert at the same time.All the time, Browning is luring us up the garden path.   We begin to detect the problem.   The Duke is immensely proud, a man of great heritage, while she is free of snobbery, charmed by the delights of the world and human kindness, and genuinely innocent. (Infidelity does not now seem to be the Duke’s concern.)   Then we begin to see how his pride is really pathological arrogance.   â€Å"Even had you skill / In speech – (which I have not)† (35-36), (he lies, of course) to explain your objection to her behavior – which is clearly quite â€Å"normal† – it would involve â€Å"stooping, and I choose / Never to stoop† (42-3).So, rather than speak to her about his dissatisfaction, which would involve impossible condescension by him, he chose to solve t he problem rather more radically: â€Å"This grew; I gave commands; / Then all smiles stopped altogether† (45-6).   It takes a moment for us to register what he did, so unbelievable is it and so evasively phrased.â€Å" †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦..She thanked men,—good; but thanked /Somehow†¦.I know not how †¦.as if she ranked /My gift of a nine-hundred-years-old name /With anybody’s gift,†-   the last part of the speech clearly brings forth the envy rankling in the speaker’s heart!The unbending pride of the Duke comes out through the turns of phrases of this part of this long monologue, â€Å"†¦.and if she let/Herself be lessoned so, nor plainly set/Her wits to yours ,forsooth and made excuse,/-E’en then would be some stooping and I choose/Never to stoop.†The Duke can hardly ‘chose to stoop’to give in to the childish demeanors of his beautiful wife.Again, jealousy seems to be prevalent in the tone of these words: â€Å"†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦..Oh ,Sir, she smiled no doubt,/Whene’er I passed her; but who passed without /Much the same smile?†Then having confessed to murder, or, rather, boasted of it, he continues his negotiations for his next Duchess, celebrating, incidentally, one of his favorite art works, â€Å"Neptune†¦ Taming a sea-horse† (54-5), the very image of the brutal control that he has himself exerted over his innocent last Duchess.The willow scene from Othello works differently, of course, because it is a dialogue, though it is the inner workings of Desdemona’s mind that the dramatic form reveals here, just as much as is the case in Browning’s poem There is an almost intolerable pathos about this scene because Desdemona is so helpless.   She has a good idea of what is going to happen – â€Å"If I do die before thee, prithee shroud me /   In one of those same sheets† (24-5) and is impotent in the face of her fa te.There seems to be no defence against the ruthless execution of Othello’s enraged will. She is in a sort of trance, a hypnosis of shock.   All she can do is wait for the end, and the pathetic simplicity of her reflections here is the sign of a wounded spirit in retreat from reality.   The tragic atmosphere is given additional poignancy by the occasional interruption of the everyday details of â€Å"undressing for bed†, the habitual continuing because there is nothing else to do in the face of the worst – â€Å"Prithee unpin me† (21).She continues at moments to pretend that this is just an ordinary night: â€Å"This Lodovico is a proper man† (35), not a comparison of Othello with her country forms, but a pathetic attempt at gossip. But her real thoughts emerge in the obsession with the willow song, which she cannot resist. It is the perfect mirror of her own fortune: â€Å"And she died singing it; that song tonight / Will not go from my mindà ¢â‚¬  (30-1). Like a detail from a psychoanalyst’s casebook comes the unprompted line in the song that gives away the deepest thoughts of the willing victim.–Let nobody blame him, his scorn I approve, —Nay, that’s not next.   Hark!   Who’s that knocks?–It is the wind.† (51-3)She corrects herself, but the absolute terror of realisation goes through her.   Compared with Desdemona’s helplessness in the face of the corruption of Othello, Emilia’s jokes have an immensely remedial health.   It is not a criticism of Desdemona, but it is a firm placing of trust in the human by Shakespeare.In Shakespeare’s Othello,the Moor can hardly be blamed for his rash decision of murdering Desdemona, who had been black-painted   by his ‘honest Iago’ and it was Iago again who had sown the seeds of jealousy in his mind. Desdemona pleaded her innocence at last and asked to call for Cassius but Othello ran berserk m addened by sexual jealousy.Othello could hardly be blamed for the attitude, as he was a Moor and unfamiliar with the ways and manners of the Venetian Republic. Naturally, he fell victim to Iago’s insinuations and committed the murder of hi beautiful wife, Desdemona, who was actually, innocence incarnate.In Act IV, sc ii, Othello in reply to Desdemona’s pleading innocence disgustingly cried out, â€Å"O Desdemona, away! away! away!†Desdemona , being totally unaware of the handkerchief she lost tried to reason with her husband, â€Å"Am I the motive of these tears my Lord?†It might have been possible that Othello could have turned deaf ears to Iago’s   vitriolic comments or aspersions cast on Desdemona, but as he was new to their society and culture, it became easy for Iago to prison him against his wife, a paragon of beauty.By way of rejoinder , when Othello speaks out, â€Å"Had it pleased Heaven/To try me with affliction ;had they rained/All ki nds of sores and shame on my bare head/Steeped me in poverty to the very lips/Given to captivity me and my utmost hopes/I should have found in some place of my soul/A drop of patience†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.†and at last turns to the question of â€Å"complexion† , â€Å"Turn thy complexion thee..  Ã‚   †¦Ay there look as grim as hell!†, we find Othello a dejected, frustrated ,lost soul feeling small for being a Black Moor who was lien to the Venetian culture! Question of Culture and Identity assails him, no doubt!  Othello decided to put an end to the life of his unfaithful wife at last and as he uttered the words in Act V, Sc ii, â€Å"Yet, I’ll not shed her blood;/Nor scar that whiter skin of hers than snow/And smooth as monumental alabaster/Yet she must die,else she’ll betray more men†,Did he not sound the same as the Duke of My Last Duchess who had been driven mad by sexual jealousy? The murder could not be justified, but , Othello was quite a lover and a compassionate person than the Duke. He needed evidence to prove Desdemona’s betrayal, he had to fight immensely with his own conscience to come to the decision of murder.As a person, Duke was cold-blooded, but Othello was emotional and irrational at he same time. If this had not been so,   â€Å"†¦I will kill thee,/ And love thee after.One more and this the last./So sweet was ne’er so fatal. I must weep/ But they are cruel tears ;this sorrow’s heavenly ;/IT STRIKES WHERE IT DOTH LOVE,†could he utter such words? The Duke of My Last Duchess was never so overpowered with emotions to give vent to his pent-up goodness. Did he have any goodness, if at all?In Act V, sc i, Othello is making his mind up to vent his rage upon Desdemona. Here he again finds enough reason to slaughter Desdemona. On hearing the footsteps of Cassius, he blurt forth, â€Å"’Tis he;-O brave Iago, honest and just†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢ € ¦minion your dear lies dead/and your unblest fate hies, strumpet I come†Till Lines 31 of Act V   Sc ii, we find Othello raves and rails on the murder of Desdemona. Othello seemed to give a chance to Desdemona to prove her innocence by saying, â€Å"If you bethink yourself of any crime/Unreconciled as yet heaven and grace /Solicit for it straight.†But he meant the murder and perpetrated it! In Act III ,Sc iii, when Othello grows blind in rage provoked by â€Å"honest Iago’s† words, he finds every reason to kill Unfaithful Desdemona and utters, â€Å"Monstrous , monstrous!!†On hearing Cassio’s dream-mutterings on his secret affair with Desdemona, Othello got green with anger and envy and saw betrayal from the cruelest possible angle.He found terrible monstrosity in it, profound mendacity in the whole episode, running on the sly.When Emilia came after the murder talking of Desdemona’s profound love for her husband ,Othello could not keep his cool, he blurted, â€Å"O cursed slave!/Whip me ye devils/From the possession of this heavenly sight/Blow me about in the winds, roast me in sulphur/Wash me in steep-down gulfs of liquid fire†¦O Desdemona, Desdemona, DEAD!!†[Act V, Scii] Could we ever expect the Duke speaking in such touchy, sentimental terms after committing the murder?No, never!!!Works Cited1.Shakespeare, William:Othello, Arden, London, 1974.2.Young, W.T.:Browning’s poems,Macmillan, London, 1975.

Israel and Judah’s Sins and Destruction

Israel and Judah sinned against God which provoked Him to uproot them from their land. According to 2 Kings 17, Israel and Judah failed to follow God’s covenant by worshipping â€Å"other gods† (v. 8), following â€Å"the practices of the nations the Lord had driven out before them, as well as the practices that the kings of Israel had introduced† (v. 8), building â€Å"high places in all their towns† (v. 9), setting up â€Å"sacred stones and Asherah poles on every high hill and under every spreading tree† (v. 10), and burning â€Å"incense† in every high place† (v.  11).Way back to the time God saved them out of Egypt, God commanded them as part of his covenant not to â€Å"worship any other gods or bow down to them, serve them or sacrifice to them† (v. 35). But, when they came to the Promised Land, they forgot God’s commandments and His covenant. They, instead, worshipped idols and other gods which made God angry. The se idols include one that is shaped like a cow, and the other one â€Å"an Asherah pole† (v. 16). They also worshipped the stars in the heavens and Baal.Worse, they sacrificed their children â€Å"in the fire† and â€Å"practiced divination and sorcery† (v. 17). God sent them warnings through His prophets. In 2 Kings 17: 13, God says, â€Å"Turn from your evil ways. Observe my commands and decrees, in accordance with the entire Law that I commanded your fathers to obey and that I delivered to you through my servants the prophets. † And in 2 Kings 21:12-15, God revealed what he intends to do with them. Yet, despite the warnings God sent, they continued with what they are doing and they have become stubborn and incorrigible.They would not repent from their wickedness. Consequently, God â€Å"removed them from his presence† (2 Kings 17:18) by sending invaders such as the King of Assyria to Israel, and the King of Babylon to the tribe of Judah. These i nvaders plundered their land and they were brought to another land. So the Israelites were exiled in Assyria as what can be read from 2 Kings 17 and the tribe of Judah was brought to Babylon according to 2 Kings 25. In 2 Kings, there is a cycle of sin, judgment, and restoration of the Israelites and the tribe of Judah.Moreover, there are also prophetic messages through the Minor Prophets Joel and Micah. However, this cycle of sin, judgment and restoration did not only happen to the Israelites and to the tribe of Judah but this is also taking place in our world today. The Prophet Isaiah in Isaiah 66, warns of people who â€Å"did evil in my [God’s] sight and chose what displeases me [God]† (v. 4). They will be judged according to their deeds but if they â€Å"consecrate and purify themselves† (v.17), God â€Å"will bring all your brothers, from all the nations, to my holy mountain in Jerusalem as an offering to the LORD† (v. 20). Joel, in chapters 1 and 2 of Joel, prophesies of a day when locusts will come to the land and he calls out to the people of Israel to repent from their wicked ways. Along with a call to repentance is the assurance of restoration from God. Likewise, Micah points out the sins of Israel and Judah and prophesies that their â€Å"idols will be broken to pieces; all her temple gifts will be burned with fire† (Micah 1: 7). But God promises deliverance in Micah 2: 12-13.This cycle of sin, judgment, and restoration can be seen in the individuals and in groups of people nowadays. Like for example, an individual person commits a sin of lying and cheating which are minor sins and suffers the consequences for those sins, yet when he/ she repents, God makes a way for that person to be restored and to have a new life. In our times when natural and man-made disasters are happening, most of these are results of man’s neglect and carelessness. However, despite the sins of man, God comes to rescue them and he res tores peace to the land.References 2 Kings 17-25. BibleGateway. Com. Retrieved April 21, 2009, from http://www. biblegateway. com/passage/? book_id=12&chapter=24&version=31 Isaiah 66. BibleGateway. Com. Retrieved April 21, 2009, from http://www. biblegateway. com/passage/? search=Isaiah%2066;&version=31; Joel 1 & 2. BibleGateway. Com. Retrieved April 21, 2009, from http://www. biblegateway. com/passage/? search=Joel%201;2;&version=31; Micah 1 & 2. BibleGateway. Com. Retrieved April 21, 2009, from http://www. biblegateway. com/passage/? search=Micah%201;2;&version=31;

Islamic finance Essay Example | Topics and Well Written Essays - 2000 words

Islamic finance - Essay Example It may be defined as a finance system that conforms to Islamic law, also known as Sharia, although the definition does not imply that is it limited to Muslims or Islamic countries (Rammal & Zurbruegg 86) Islamic finance is guided by ethical concepts prescribed by Sharia in relation to money and capital and the association between profit and risk as well as the social obligations of financial institutions. It has grown into a global and cosmopolitan financial system, committed to a text that may be accessed by all people. Being open to innovation, the system has been able to effectively compete with the conventional financial system by offering a wide range of financial products suiting numerous customer needs. Serving as an alternative to the conventional financial system, Islamic finance has been forging a more functional link between activities of real economy that generate value and the financial activities which facilitate it. This paper will discuss ways in which Islamic finance can be considered as an alternative to conventional finance and why it is a viable alternative. Governance and Regulation Although it is governed by the same fundamental monetary policies as conventional banking, the key and most significant distinguishing factor is the requirement of a strict adherence to a code of ethics (Zepeda 52). At the microeconomic level, Islamic finance is regulated by Sharia supervisory boards, or Sharia scholars at the least, who are responsible for approving and reviewing financial products and practices for compliance with Sharia guidelines. At microeconomic levels, the key regulatory authorities and institutions are located in Malaysia and Bahrain as the largest segments of the Islamic finance’s market are predominantly found in those jurisdictions. Among the leading organizations that set standards of the system are the Accounting and Auditing Organisation for Islamic Finance (AAOIFI), Malaysia Accounting Standards Board (MASB) and Islamic Fin ancial Standards Board (IFSB). AAOIFI is based in Bahrain while MASB and IFSB are in Malaysia (Zepeda 53). Islamic Finance as an Alternative to Conventional Finance The conventional finance system has been described as being innately unstable mainly due to being based on interest and debt as well as using the credit multiplier to leverage itself while creating debt excessively. It is characteristic of government rules and regulations, insurance schemes and treatment of tax to promote contracts that are based on debt in conventional finance rather than those involving sharing of the risks (Zepeda 48). As such, a finance system founded on debt encourages the transfer of risk while the gains of sharing risks are underused. Islamic finance offers an alternative to conventional finance to those seeking to integrate values and ethics into financial services as a positive development that also promotes social justice. The alternative can best be viewed from the two perspectives through whi ch the system has evolved. First, the system has eliminated interest-based finance, also known as riba, as per the guidelines of Sharia. It is also from this principle that the nature of capital is held exclusively as a medium of exchange since it has no attached intrinsic value. Second, it has developed a comprehensive range of low-risk financial products that aim at giving depositors, shareholders and regulators the same level of confidence. Although most of the products are debt-based and resemble the instruments used in conventional finance, they bear a distinguishing feature in the way they promote entrepreneurship; do not support speculative behavior; preserve property rights; advocate for sharing both returns and risks; and keep contractual obligations transparent (Mahlknecht 71). In this manner, the system has not

Global Supply Chain Managment (A critical analysis of a retail Essay

Global Supply Chain Managment (A critical analysis of a retail businesses supply chains and their ability to weather the current economic climate) - Essay Example The company is also one of the largest exporters and has its branches in various parts in other countries where it has expanded its business successfully. The various products that the company have are like Lux, Wheel, Rin, Surf excel, Kwality Wall’s for ice cream section etc. and many more brands in the category of tea, coffee, soaps, personal care products, ice cream. To have such a good and wide network the company has a good supply chain management system. In this report the supply chain network of the company and its importance in the business process of the company is been seen using various theories and concepts of supply chain management. The effective use of supply chain and the process for implementation of efficient supply chain is been analysed in this essay. For such a huge company like Hindustan Unilever it needs to have an effective supply chain management and have a good control over the supply chain network. The company has a good supply chain network and different for villages and different for the urban cities. There are few issues related to the supply chain network of the company which can affect the company and also is affecting the company in a huge way. With the growing competition the company needs to have an error free supply chain network so that it can capture most of the market share (James, Rowland-Jones and O’Brien, 2004, pp. 56-64). The issues that are affecting the supply chain network of the company are been listed below. Order’s are not getting fulfilled properly as every retail shop is finding shortage of some or the other particular product in their stores. This unavailability of thee product does affects the company as the customers tend to buy other brand products and HUL looses customers in this way. This also makes the retailer to be less interested in selling other HUL products and he/she prefers

Spanish Slavery Essay Example | Topics and Well Written Essays - 1250 words

Spanish Slavery - Essay Example Despite being a slave, he wrote between the lines of domination while being concurrent with the prevailing circumstances. He did this with the objective of creating a 19th century alternative image of Spanish Caribbean societies that needed further critical perspectives and considerations. In this essay, I will compare Manzano with the figure of the Count in The Last Supper, in holding that despite the varying positions the two characters occupied in their respective settings, religion was a dominating factor in crystallizing their respective personalities in the context of what they delivered. The argument will be made very clear by analyzing their respective approaches towards religion and how they used religion in achieving their ends. Main Body The film, The Last Supper, directed by Tomas Gutierrez Alea (1976), depicts that in a rather imprudent attempt to add to the knowledge of his African slaves, the Count, who is pious as well as guilt ridden, asks twelve chosen slaves to hav e dinner with him on a Maundy Thursday during Easter, obviously with the intention of re-enacting the Last Supper with himself performing the role of Christ. As they are involved in eating and drinking, the Count feeds the slaves with a lot of religious oratory and tries to guide them about the tenets of Christianity. He proposes to give them an off the next day, which is Good Friday and pledges that he will free one amongst them. But he does not meet up with his commitment the next day and the slaves stage a revolt. Both, the Last Supper as well as Juan Francis Manzano’s autobiography relate to the lives of slaves in Cuban sugar plantations during the late eighteenth century and are real life stories. The film’s center piece is the bizarre circumstances under which the last supper is supervised by the Count. In keeping with a truly religious fervor, he starts by washing and kissing all the slaves’ feet as each one of them is intensely amused at the mad behavior . However, the film depicts that despite the occasional religious sentiments exhibited by the Count, who is the dominating character, he can be easily seen as an authority figure that is guilt ridden and immensely mysterious. It becomes evident from the film that the truth relative to human behaviors cannot be hidden and eventually surfaces with the actions of individuals. It appears the count is attempting to demonstrate to the slaves, his knowledge and adherence to Christian dogmas and beliefs. In this process, he clearly gives away his lack of clarity about Christianity when he tells the slaves that sorrow is the only thing that humans can happily give to God, adding that anyway, everything belongs to God. The slaves get confused and are absorbed at the thought of what he implies when he speaks about consuming Christ’s body and blood in the forms of bread and wine. Following the rebellion by the slaves, the film ironically depicts that the Count himself gets crucified as a n unlikely son of God for denying justice and property to the slaves. Autobiography of a Slave is a first hand account of Juan Francisco Manzano’s life, times and struggles. Monzano has narrated his story from a first person perception.

Short reflection Essay Example | Topics and Well Written Essays - 250 words - 2

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Current Evans and US Diplomacy - Essay Example Besides, both the United States and Russia began to cooperate in international security issues such as regarding nuclear weapons. Even though the Cold War might have ended, the United States and Russia are still seeking to exert influence across the world (Kegley and Wittkopf, 2007). The two states still clash on plenty of issues; for instance, they have not agreed on the best way to settle the Kosovo’s final status and ways of treating efforts by Iran to gain nuclear weapons. The most recent event to show that friction exists between the two countries is the military action in Georgia by Russia. Mankoff (2010) argues that the Cold War is the default paradigm through which the United States- Russian relations are viewed. Prior, during, and after the Cold War, the United States seems to enjoy a very cordial relationship with the United Kingdom. Christopher (2010) observes that more often than not, these two countries tend to have similar or related ideologies and objectives. That explains why they have often been allies in major events of the world such as the Second World War and the Cold War. The current relationship between these two states is cordial as evidenced by a number of endeavors they undertake together, and the seemingly similar objectives in the New World Order. The cordial relationship between the two states can be traced to over four centuries ago. Their current relationship is based mostly on the fight against terrorism, especially after the terrorist threat became more real following the 9/11 attacks and the London bombings on July 7, 2005 (Kegley and Wittkopf, 2007). After the United States declared War on Terror, the United Kingdom actively joined in the war with its forces partic ipating in the Afghanistan and Iraq War. Additionally, their current policies towards each other represent one of the most important and greatest bilateral relationships in the

Financial Accounting Standards Board (FASB). Accounting Standards In Essay

Financial Accounting Standards Board (FASB). Accounting Standards In The USA. Ethics And Accounting Profession - Essay Example I like the field of international accounting, but unfortunately I do not possess the knowledge necessary to become a valuable asset for the IASB. During the past course I took, accounting theory, I learned a lot about the importance of the FASB and how much the principles created by the FASB affect the operations of companies in the domestic U.S. marketplace. I believe that the Sarbanes Oxley Act of 2002 was a game changer in terms of regulations. SOX raised the integrity, credibility, and accountability of all accounting information in the United States of America. The FASB indirectly benefited from the implementation of the Sarbanes Oxley Act because its bylaws were strengthen as a result of this new regulation. When people believe in the accounting numbers published by US corporations they are strengthening its trust in the GAAP and the FASB. In terms of the GASB I am not really interested in governmental accounting. DQ2 The current accounting standards in the United States of Ame rica are ethically based. Ethics and integrity are two of the values that all accountants uphold at all times when working the profession. The generally accepted accounting principles (GAAP) represent the bible for accountants. Ethics is taken into consideration in accounting in many circumstances. For instance the principle of conservatism states that when in doubt an accountant should always underestimate revenues. Sales forecasting techniques such as the Delphi method should be implemented taking into consideration the principle of conservatism. During the past nine years the accounting profession has increased its credibility with the inception of the Sarbanes Oxley Act of 2002. The CEOs and top executives of the company including the CFO and controller are personally liable if the financial statements of their company are full of material error or fraudulent activity. SOX also created better internal controls and the integration of auditor independence. Accounting students sinc e the undergraduate level are taught that ethics is an extremely important aspect of accounting work. The curriculums of universities should include more courses in pure ethics as part of the curriculum of business administration. At the corporate level most companies have code of conducts that integrate ethics into its bylaws. DQ3 Ethics are extremely important to the accounting profession. Accountants form close business relationship with their clients. Trust, loyalty, and high ethical conduct are expected from all accountants. Accountants work as facilitators of financial information for internal and external stakeholders. Some of the stakeholders that depend on information provided by accountants include investors, suppliers, lenders, employees, customers, government and the community. The ethics bar was raised nine years ago when the U.S Congress and the Security and Exchange Commission (SEC) worked together to create the Sarbanes Oxley Act. Section 802 of the Sarbanes Oxley Ac t imposes criminal penalties for altering, destroying, mutilating, concealing, falsifying records, documents or tangible objects with the intent to obstruct impede or influence a legal investigation (Soxlaw, 2003). I think that justice was served in the Enron case because some of the executives received jail time. When ethics are not in play in the accounting profession a lot of criminal activity can occur. Deceptive accountants can defraud the government out of hundreds of thousands of dollars by falsifying information in the personal tax returns of their clients. Unethical accountants also do not comply with the generally accepted accounting principles (GAAP). It is the duty of all accountants to comply with GAAP. Soxlaw.com (2003). Sarbanes-Oxley Act Section 802. Retrieved

Boatright Essay Example | Topics and Well Written Essays - 500 words

Boatright - Essay Example Therefore, since the individual assumes the risks involved, he can be said to be contributorily negligent (Edwards, Edwards, and Wells, 2008). Individual autonomy incorporates moral and political values that dictate how individuals govern themselves, irrespective of their role in social structure, as well as political alienations. In addition, an individual’s moral principles and responsibilities, and the legality of political weight are critical in self-governing the individual (Christman, 2011). Kant investigates the ideas and concepts surrounding morality and elucidates commonsense ideas that are crucial in coming up with our moral judgments. In the case under study, the individual may have been under intense pressure to find a job because of the need to fend his family and himself. However, he was well aware of the risky conditions that were combined with the job he accepted. Based on the doctrine of volenti, the individual cannot be able to bring a claim to his employer because of his assumptions on the risks involved (Miller & Jentz, 2009). The plaintiff already accepted to take the risks involved in exchange for the job. Lundmark (1998) asserts that assumption of the risk is a volitional act, and it cannot be present if the claimant has no knowledge or awareness of the impending dangers associated with the job at hand. This doctrine provides a complete defense for the defendant since the individual can be held to have voluntarily accepted the risks involved with the job. However, in case the defendant is found to have committed any form of negligence, damages sustained by the plaintiff can be viewed to be inconsistent. Kant draws his views from moral philosophy and provides general judgments that are deemed to be deeply held. In addition, Kant argues that the moral judgments should be widely accepted and acceptable to

Building the 787 Essay Example for Free

Building the 787 Essay Boeing is an Aerospace science company and is the worlds most leading aerospace science company and is the largest manufacturer and producer of commercial and military aircrafts. Boeing creates and produces rotorcraft, electronic and defense systems, missiles, satellites, launch vehicles and advanced information and communication systems. A little known fact about Boeing is that they are a major services supply to NASA and Boeing helps to operate the International Space station. Boeings main corporate office is located in Chicago, Illinois and employs over 158,000 individuals throughout countries all over the world. Boeing also outsources some its manufacturing business to national and foreign countries. The main assembly hub is located in Washington at a place called Everett plant. Unlike other traditionally built jetliners, the 787 is about 20 percent lighter which saves fuel and lowers overall cost of travel because the jet is made of nearly 80 percent composite material. Along with the new lighter sleeker look, the 787 was redesign with better headroom, larger windows and electronics in the passenger cabinets as well as the flight deck. While this new undertaking seems to be business as usual, Boeing was actually changing the way it now built aircraft. Bousch (2010, December) said it best when he stated, with the 787, Boeing set out to do something revolutionary by tapping suppliers not only for materials, parts, and components, but also innovation. And in doing so, it set out not only to bring a new platform to market as quickly as possible, but also, ironically, to reduce business risk by reducing its dependence on its own operations. The newly developed 787 was to be first aircraft from Boeing manufactured almost exclusively through outsourcing. Almost 70 percent of the plane’s parts were built in other countries. According to Hill (2011), this was Boeing’s gamble that outsourcing would contribute to the huge costs of production while utilizing the expertise of worlds most efficient producers thereby driving down the costs of making the plane (p. 564). Additionally, Boeing thought that outsourcing the planes components would help reduce planes normal develop time of six years to four while building brand awareness and sales in the countries where manufacturing was performed. Boeings’ Risks associated with Outsourcing While Boeing had plenty of cost-cutting reasons for outsourcing nearly 70 percent of the 787 aircrafts manufacturing to 17 contractors in some 10 countries, I’m not sure the risk associated with such a huge amount of outsourcing was truly evaluated by Boeings management. This change in philosophy was evident by the fact that in the company’s past production of Boeing models 777, 767 and 707 some of its components were outsourced to companies around the globe, but not in any of those models was more than 50 percent sent to outside manufacturers. Nevertheless, the initial response to the 787 was tremendous. Mike Blair, Vice- President and General Manager of the 787 program declared, as July 31, 2007, 47 customers worldwide have ordered more than 683 airplanes worth more than $110 billion dollars at current list prices, making the 787 Dreamliner the most successful commercial airplane launch in history. And there’s more to come! (Aeromagazine (2007), p. 4). Those po sitive sentiments from Boeing didn’t last very long. Boeings’ efforts to be leaner and â€Å"cut out the fat† cause them to rely to heavily on key components to be delivered by outsourced contractors and suppliers. By December 2007, Boeing was starting to question its move to global outsourcing. Boeing’s most fierce competitor Airbus had already suffered from problems with delays due to outsourcing when it produced the Airbus A380 Super-Jumbo. With the company now experiencing breakdowns within the supply chain, final preparation and assembly was ultimately impossible. Boeing realized that it was more difficult than expected to navigate so many different suppliers and get required components to its assembly plant within a specified time to complete assembly. Scott Carson, Boeings executive vice president of commercial airplanes, put it succinctly: â€Å"It has simply proved to be more difficult than we anticipated to complete the structural work on the airplane out of sequence in our Everett, Washington factoryâ⠂¬  (Teresko, 2007, p. 1). As delays mounted, Boeing had to finally admit that the weak link in the production of the Dreamliner 787 was its global outsourcing. There were issues from the start that the public never knew about. Boeing overestimated there ability to have proper oversight over contractors. Some suppliers, outsource there work to other suppliers and some had difficulty getting approval and licensing to manufacture there products. The risk that Boeing took was one that could have backfired based on the fact that delays are continuing and in the end, this outsourcing relationship of manufacturers and supply chain management could whine up costing the company more than money. Is Boeing giving up its competitive advantage by outsourcing its core components to suppliers across the world? One would question whether this choice to outsource so much of its design and components and technology to the Japanese will eventually even the playing field. Newhouse (2007) claims that â€Å"Boeing developed much of the materials, manufacturing processes, tooling, tolerances and allowances, and other design features, which are then transferred to suppliers in Japan, Italy and elsewhere. Over time, institutional learning and forgetting will put the suppliers in control of the critical body of knowledge, and Boeing will steadily lose touch with key technical expertise† (p. 4). Newhouse goes on to say that Japanese suppliers are acquiring so-called core competences, hence giving up its competitive edge by outsourcing major parts of the Boeing 787 (p.4). Whatever the opinion, only time will tell if this systematic change of having suppliers and there governments absorb the financial risk will undoubtedly by the rise or fall of Boeing as the world foremost leader in commercial aircraft. Managing the Globally Dispersed Supply Chain By mid 2008 the Boeing 787 had out sold the Airbus A380 by almost 400 orders. The Boeing flagship aircraft was order by more than 50 airlines with orders totaling 857 worth more than 144 billion dollars. These orders, originally schedule to be delivered for May 2008 were now being pushed back to the end of the year due to what Boeing called delays in dealing with its global supply chain which have affectively crippled there assembly lines. It appears that Boeings undertaking was more than just attempting to change the assembly and supply chain processes but it attempt at changing the materials in which aircraft are made seemed daunting enough. The delays appear to be due in part because the supply chain had so many suppliers and contractors trying to protect their own financial investment that all parties eventually suffered from continued delays and wound up risking profits. The continued changing and late delivery dates inevitably cost Boeing and its suppliers billions of dollars. After almost three years the Boeing 787 is still missing its self imposed deadlines for deliveries. According to Cohan (2010), Boeing has missed deadline after deadline with the 787 program – six times over the last two-and-a-half years-and it now looks poised to do so for a seventh time (p.1). Scott Hancher, the Boeing 787 programs third director, seems incline to blame the delays on instrument changes and suppliers inability to properly install parts for the tail-wing. Regardless of his accusations, the 787 still needs to be tested by the Federal Aviation Administration (FAA) before there is any certification. Not all of blame is on the contractors and suppliers. Boeing knew that they were embarking on unprecedented ways to produce commercial aircraft and there engineers should have developed software that could predict how the aircrafts composite materials would hold up under the normal stresses of air travel. This inability to predict the safety of the plane caused problems with cracks in the plane and delays imposed by the FAA until they issues were resolved and the aircraft deemed safe for passenger travel. Boeing now appears to making the anticipated changes by taking on more work and responsibility to the supply chain in order to effectively manufacture and produce the 787 aircraft to the specifications of the FAA. In 2009 Boeing brought its Dreamliner operations from two of its suppliers that were said to have had the most problems along the supply chain. This change has stepped up production of parts because other suppliers have realized the financial drawbacks and possible lost of contracts. This has prompted quicker responses and resolutions that have fixed the flaws in the manufactured products. Boeing in there attempt to be innovative and to create a new market forgot that there largest competitor Airbus was continuing to grow its market and create opportunities from Boeings mishaps. We can only hope that Boeing follows Airbus as the second major aircraft developer to increase restrictions on contractors and require that they only outsource a small portion of work to Asian countries in an attempt to develop partnerships for production and possibly development. McInnes (2008) was correct when he asserted that with a consortium of EADS (owners of Airbus) and Northrop Grumman winning a 40 billion dollar order from the United States government to build 179 refueling aircraft for the US Air Force, Boeing could do good with just getting the 787 certified and get on with deliveries as soon as possible (p.4). Is Boeing’s Outsourcing essentially sending American Jobs Overseas? The question about outsourcing has many Americans worried that jobs are being shipped overseas where labor is cheaper. Boeing the world’s largest commercial aircraft producer has made outsourcing its primary means for development of its groundbreaking commercial aircraft, the Boeing 787 Dream-liner. In an unprecedented move, Boeing decided to outsource nearly 70 percent of the development and component manufacturing to suppliers and contractors around the world. With its primary assembly plant in Seattle, Washington area, Boeing and its employees are worried that this trend will continue and cost many of them their jobs. In a recent Seattle-Post Intelligencer poll, 80 percent of the pollsters thought that outsourcing overseas will hurt the economy in the long-term. Americans have reason to worry, it’s not none how many jobs have been lost overseas thus far but its believed that over 2 million service jobs will be lost in the next decade or so. According to Cook and Nyhan (2004), Perhaps no player in the local economy has sent more jobs overseas than Boeing.Skip navigation The company makes no excuses for sending work to South Africa, Italy, China, Russia and other far-flung parts on the globe and the company argues it has no choice. It must build planes with fewer and more productive workers to remain competitive (p.2). In an effort to cut cost and look for the best manufacturers and engineers at there craft Boeing feels there move to outsourcing was inevitable because it is the future of airplane development. This effort to compete has forced the hand on over 40,000 employees that have lost there jobs at Boeing since 2001 and have benefited countries like China and Russia where we seen as many as 5,000 new jobs created for engineers and those with aerospace technologies and manufacturing skills. Though opinion will continue to be varying when it comes to outsourcing, Boeings’ says the company is committed to a stab le workforce. He believes the red-hot success of the Dream-liner 235 firm orders so far goes a long way to validating the new outsourcing strategy. Without the ability to reduce the planes overall development costs and be able to sell at prices comparable to older jetliners, success would be far less assured (Holmes, 2006, p. 4). The approach by Boeing has caused much concern but for now has been profitable with the huge orders for the 787 Dream-liner. The true test will be when be when supply chain again fails to be dispersed efficiently and the cost increase with the manufacturing of an aircraft. Will this cause the destabilization of the American workforce? Will it decrease Boeings new dependency on using outsourced foreign technologies and manufacturing? These questions will not be answered until there is another downturn in which large companies again turn to outsourcing in an effort to reduce production cost to stay competitive. Reference Blair, M. (2007, August). Building the dream: Boeing 787.retrieved from: http//boeing.com/commercial/aeromagazine.com Cohan, P. (2010, July). Boeing 787 delays: will the seventh missed deadline be the last? Daily Finance. Retrieved from: http://www.dailyfinance.com/story/company- news/boeing-787-delays Cook, J. and Nyhan, P. (2004, March). Outsourcings long-term effects on U.S. jobs at issue. Seattle PI Business. Hill, C. (2010). International Business, 8th Edition. Irwin/McGraw-Hill/MBS. Holmes, S. (2012). Boeings Global Strategy. Bloomberg Business. Retrieved from:http://www.businessweek.com/magazine/content/06_05/ Newhouse, J. (2007, March).Boeing Versus Airbus: Flight Risk, Outsourcing Challenges. Retrieved from:http://www.cio.com/article/29096/Boeing_Versus_ Airbus_Flight_Risk_Outsourcing_Challenges_?page=3 Teresko, J. (2007, December). Boeing787: a matter of materials – special report: anatomy of a supply chain. Retrieved from: http://www.industryweek.com/articleid-15339showall=1 Boeing. (2010). History. Retrieved on August 24, 2012 from http://www.boeing.com/history/narrative/n001intro.html

Preparing To Conduct Business Research Essay Example for Free

Preparing To Conduct Business Research Essay Introduction In conducting business research for the NFL organization instruments to collect data and conduct interviews will need to be used. The appropriate sampling and research methods will also be discussed for this research process. The NFL organization will see great benefits from conducting this research to reach the right conclusions about the problems they are facing as of late with their players violating the league’s personal conduct and substance abuse policies (2014 NFL Fines/suspensions Tracker, 2014). Their players have also been a part of many domestic violence arrests. (Morris, 2014). Sampling/Research Methods For this particular research, this study will require purposive sampling. The participants will have to be chosen arbitrarily for their unique characteristics, experiences, attitudes, or perceptions. Then as conceptual or theoretical categories of participants develop during the interview process, new participants will be sought out to challenge emerging patterns (Cooper Schindler, 2014). The first two groups will have to be NFL players who have a history of being involved in personal conduct and substance abuse violations, and those who do not. Individual interviews will have to be conducted face to face during the player’s practices or other down time they may have. If they choose to participate in the study, individual interviews will allow each player to feel more comfortable sharing truthful information about themselves and their possible involvement in personal conduct and substance abuse violations. The interviews will be semi-structured in nature because semi-structured interviews develop a dialog between interviewer and participant, and use the skill of the interviewer to extract more data and a greater variety of data, and can achieve greater clarity and elaboration of  the participant’s answers (Cooper Schindler, 2014). Instruments to Use to Collect Qualitative Information The instrument that will be used to collect this qualitative information will be survey via personal interview. This is because the depth and detail of information that can be secured is greater. The interviewer has the ability to improve the quality of information collected with this technique over any other methods. This is because the interviewer has the ability to observe the participants and see if they are having a hard time understanding questions and make it so that the participants can relate to them and feel more comfortable overall responding to them considering the nature of the questions that the NFL players will be answering (Cooper Schindler, 2014). Appropriate Sample Method The appropriate sample method for this research is a probability sampling because personal records of the players are already on file and they can choose narrow down the candidates for the survey to determine the best ones. Although with all the care taken for the survey â€Å"some people will refuse to participate† (Cooper Schindler, 2014). Due to players refusing to participate â€Å"sampling error is likely to rise† and the researchers would take that into account when determining the sample method (Cooper Schindler, 2014). Sampling Frame The sampling frame that would be used for this research study would be drawn from the roosters of the current players that are currently held by the coaches. To increase the sampling group this would also include previous players that had been involved with the league (Cooper Schindler, 2014). The researchers would pull from a â€Å"larger population and then use a screening procedure to eliminate those who are not members of the group† that the team wishes to study (Cooper Schindler, 2014). Players have been accused of the infraction in the past or currently have a case pending will not be included in the survey. The players will be assigned numbers and chosen at random to be surveyed. Appropriate Sampling Size â€Å"How large a sample should be is a function of the variation in the  population parameters under study and the estimating precision needed by the researcher† (Cooper Schindler, 2014). Due to the variance that could arise within the population the sample of the research would need to be larger to account for the variance (Cooper Schindler, 2014). The sampling size will also be large due to the smaller error range needed to determine the punishments for the players that commit break the player code of conduct set by the league. Cost considerations would not affect the size of the sampling because the current and former players will not be compensated for their survey. Sample Size The sample size regarding this particular experiment will be determined as followed: the first sample group will be NFL players known for having a history in being involved in personal conduct and substance abuse violations and the second sample group will be NFL players who do not have a history in either of those regards. As of now in the 2014 season, 41 NFL players have been suspended for substance abuse or personal conduct that can be interviewed in the first group and the remaining 1,655 players to choose from in the second group (2014 NFL Fines/suspensions Tracker, 2014). Qualitative Methods Being Used The qualitative method being used in the experiment is survey by face-to-face interview. The benefit to a face-to-face interview is being able to observe and record nonverbal as well as verbal communication (Cooper Schindler, 2014). It is believed that this method will produce the most honest, truthful data and in a study like this it is important to make your samples feel comfortable in opening up. Statistical Tests Being Used A powerful statistical test is recommended for this experiment. The number of players who have been suspended is too low, so it’s important to make sure the sample size will give enough data to make the experiment valid against the interviews done in the second group. Results and Conclusions The individuals that are in charge of gathering the data that is needed to create new policies for off-field incidences is going to make sure that they get everything they need to make new policies. They are going to want these  new policies to stay intact and not change every year. From the results, the NFL should be able to answer the original research question, â€Å"What should the off-field punishments be based on what the incident was?† In conclusion, the NFL was made aware that the policies for punishment of off-field incidences wasn’t strict enough. The NFL had to start by conduction interviews with players that were open to sharing information. The instrument that was used is qualitative information. The appropriate sample method for this research is a probability sampling because personal records of the players are already on file and they can choose narrow down the candidates for the survey to determine the best ones. Once all the information was gathered, the NFL was able to share the data by creating new policies for off-field incidences. References 2014 NFL Fines/Suspensions Tracker. (2014). Retrieved from http://www.spotrac.com/fines-tracker/nfl/2014/suspensions/ Cooper, D.R. Schindler, P. S. (2014). Business research methods (12th ed.). New York, NY: McGraw-Hill/Irwin. Morris, B. (2014, July 31). The Rate of Domestic Violence Arrests Among NFL Players. DataLab. Retrieved September 26, 2014, from http://fivethirtyeight.com/datalab/the-rate-of-domestic-violence-arrests-among-nfl-players/

Managing Foreign Exchange Risk in International Trade

Managing Foreign Exchange Risk in International Trade MANAGING FOREIGN EXCHANGE RISK IN INTERNATIONAL TRADE WITH A FOCUS ON EAST MIDLANDS COMPANIES Abstract The purpose of this research is to investigate how international trade companies in the East Midlands manage foreign exchange risk. This study utilises descriptive statistics in presenting and analysing data from the primary research. The findings of the research indicate that a majority of the firms used broad business strategies in managing their foreign exchange risk. The main problems the firms had with managing foreign exchange risks centred on customer retention and receiving payments on time. The results also indicate that there were a few firms which took an integrated approach to mitigating foreign exchange risk. This research is of value to firms involved in international trade and also business development agencies which seek to assist firms which are planning to enter or are already operating in foreign markets. Chapter 1 Introduction International trade involves exporting and importing of goods or services across foreign borders and, as soon as a firm engages in import and/or export it is exposed to numerous risks. As a result firms operating outside their home country, have to deal with the economic conditions of the foreign country in which it wishes to operate in. One of the key issues firms involved in import and/ or export are faced with is dealing with foreign currency as this is the only means by which the exchange of goods or services is facilitated. To this end it is import to study and understand the impact which foreign currency has on international trade. Following the demise of the Bretton Woods agreement (1971) whereby exchange rates were allowed to float freely, managing foreign exchange has become important (Heakel, 2009). Consequently the prices of currencies were determined by market forces that is, demand for and supply of money (Mastry and Salam, 2007). Due to the constant changes in demand and supply which are in turn influenced by other external factors, fluctuations arise (Czinkota et al, 2009). As a result of these fluctuations firms are exposed to foreign exchange risks also known as currency risks. Firms trading in different currencies are exposed to three types of foreign exchange risks; economic, transaction and translational risk (Czinkota et al, 2009). Firms which are involved in international trade are exposed to economic and transaction risks as they both pose potential threats to the firms cash flow over time (Czinkota et al, 2009). Studies have shown that foreign exchange fluctuations can affect the value of a fi rms cash flow over time (Aretz, Bartram and Dufey, 2007, Judge, 2004, Bradley and Moles 2002, Allayannis and Ofek 1998, Chowdhry, 1995, Damant, 2002 and Wong 2001). More so, domestic firms although not dealing with foreign currency are also affected by foreign exchange fluctuations as the price of the commodity they trade in are also affected (Abor, 2005). Most of the extant literatures have focused on corporate risk management for financial firms and as such financial hedging with derivatives has been the central theme of currency risk management. On the other hand there has been evidence to show alternative methods exist for firms involved in international trade, these methods of managing foreign exchange risks involve strategic and operational risk management. However most of these studies have been carried out in isolation; financial hedging techniques carried out in isolation of strategic and operational hedging methods and vice versa. Little has been done to provide an integrated perspective, on utilising both techniques of managing foreign exchange risks with regards to international trade firms. This is the area in which the present study intends to explore thereby contributing to the overall literature Purpose of the Research Due to the nature of international trade which expose the firm to foreign exchange movements, thus subjecting the firm to currency risks, the purpose of this research is to explore how international trade firms deal with foreign exchange risk. The research focuses how import and export firms in the East Midlands manage their foreign exchange risk. This study also aims to explore the problems involved in managing those risks. Research Questions Consequently the research hopes to answer the following questions: Do import and export firms in the East Midlands actually manage their foreign exchange rate risks? How import and export companies in the East Midlands manage their foreign exchange risks? What problems they encounter with managing these risks? Definition of Key Terms Hedge A hedge can be defined as â€Å"making an investment to reduce the risk of adverse price movements in an asset. Investors use this strategy when they are unsure of what the market will do† (Investopedia, 2010). Derivatives Derivatives are instruments whose performance is derived from an underlying asset (Arnold, 2002) Spot Rate The spot rate is defined as the rate of exchange quoted immediately if buying or selling currency (Watson and Head) International Trade This involves the flow of goods and services between nations; it involves import and/ export of goods and services (Harrison et al, 2000) The subsequent section provides a break down of how rest of the research is set out. Chapter 2: Literature Review; this chapter provides an overview of the research topic by mapping out the key areas; theories within the risk management and finance literature are identified, explored and analysed. The concept of risk and risk management is explored. A broad classification is made on the types of risks and this is then narrowed down to include foreign exchange risk. The chapter proceeds by exploring the concept of foreign exchange and foreign exchange risks; which include the types of foreign exchange exposures. The common techniques for managing foreign exchange risks are explored. This is followed by a review of relevant literature in the key areas of the research topic. Chapter 3: Research Methodology; in this chapter the research design and strategy are discussed. Chapter 4: Research Findings and Analysis; this chapter presents the findings of the research which were obtained from the questionnaire. The findings are presented using tables, graphs and charts, to enable the reader gain a clearer understanding. An analysis of the findings is carried out by cross-tabulating the responses of the respondent in order to observe for any commonalities and/or differences. Chapter 5: Conclusion and Recommendation; this chapter concludes the research and recommendations are made. Chapter 2: Literature Review 2.1 Risk Management- Risk is an intrinsic part of any business, due to unpredictability of the forces which govern business transactions such as political, economic and social conditions; risk is a factor which cannot be completely eliminated (Watson and Head, 2007). Arnold (2002) describes risk as a situation where there is more than just one possible outcome, but a range of potential returns. It can also be defined as the chance that the actual return from an investment will be different than expected (Lamb, 2008). From the above definitions, risk does not necessarily spell doom or does not necessarily have a negative connotation. Markowitz was one of the earliest academics to point this out, by establishing a link between risks and return (risk-return trade-off). Essentially the theory; Modern Portfolio Theory (MPT) involves expected return and the degree of accompanying risk for an investment (Yorke and Droussiotis, 1994). A central theme of this theory is that the greater risk an investor accepts th e higher the potential for increased returns (Yorke and Droussiotis, 1994). While MPT purports a positive correlation between risk and return, the fact that an investment can have a range of possible outcomes is an uncertainty which can be very costly. As a result risk management is also a part and parcel of business. Risk management can be defined as â€Å"the performance of activities designed to minimize the negative impact (cost) of uncertainty (risk) regarding possible losses† (Abor, p.307, 2005). The objectives of risk management are to minimize potential losses, reduce volatility of cash flow thereby protecting earnings (Abor, 2005). While the objective for risk management is to protect companies against financial loss thereby protecting the value of the firm, traditional finance theory such as that proposed by Modigliani and Miller suggests that the market value of a firm is determined by it earning power (Arnold, 2002). The basic assumption of Modigliani and Miller theorem is that in an efficient market; with the absence of taxation, bankrupt cy costs and information asymmetry, the value of the firm is unaffected by its capital structure (Arnold, 2002). However empirical research (list authors) has shown the existence of capital market imperfections, such as taxes, agency problems and financial distress exists thus justifying risk management (Chowdhry, 1995). Furthermore, MPT also suggests that the risk and volatility of an investment portfolio can be reduced, and the gains can be enhanced, all by diversifying the portfolio among several non-correlated assets (Pearce Financial, 2008). That is, investors can maximise their expected return for a given level of risk by diversifying their investments across a range of assets ((McClure, 2006). MPT involves risk management through diversification of investments. In a simplified expression, MPT is based on the idea of not ‘putting all of ones eggs into one basket. 2.2 Types of Risk There are two broad classification of risks; Unsystematic and Systematic (Rossi and Laham, 208) Systematic risks refers to risks which affect the entire market due to events such as; exchange rate movements, changes in the price of commodities, war, recession and interest rates, however Unsystematic risks are risks which are specific to individual companies (reference). These distinctions were made by Sharpe (1960) in addition to Markowitz Modern Portfolio theory (MPT), the rationale behind it was that despite risk management practise through diversification, there were still underlying factors which affected the return potential of an investment portfolio. Chesnay Jondeau (2001) clearly point out that the correlation of assets which Markowitz talks about depends on other underlying factors and that the relationships are dynamic. They further found that major events such as general adverse movements in markets can significantly change the correlations between assets (Chesnay Jondeau, 2001). Empirical studies show that in financial crisis, assets tends to act the same, that is they are more likely to more become positively correlated, moving down at the same time (Ardelean, Brandt and Malik, 2009). Essentially, severe market crises will have a spill over effect and cause investments in several different asset classes or markets to succumb to sudden liquidation (Vocke and Wilde, 2000, Pearce Financial, 2008). However findings from Xing and Howe (2003) are contradictory, their findings show that the failure of previous studies to find a positive risk-return relationship may be as a result of model misspecification. Essentially they found that there was no agreement on the risk-return relationship amongst previous studies which had used data from one market (Xing and Howe, 2003). Thus they argued that the world market should be taken into consideration in assessing risk return-relationship in a partially integrated market (Xing and Howe, 2003). But then it only stands to reason that if markets are integrated partially or wholly, a catastrophic economic cycle such as financial crises would have an adverse effect on the world market. Thus clearly it does not matter how much one diversifies unsystematic risk, the underlying systematic risk is a problematic factor which has to be dealt with. 2.3 Foreign Exchange rate as a Systematic Risk Background Foreign Exchange rate can be defined as the â€Å"price of one currency expressed in terms of another† (Arnold, p.973, 2002). For example, if the exchange rate exchange rate between the European Euro and the Pound is â‚ ¬1.3 =  £ 1.00, this means that  £1 is equivalent to â‚ ¬1.3. Foreign Exchange (Forex) is traded on the foreign exchange market, the purpose of which is to facilitate trade and the exchange of currencies between countries (Czinkota et al, 2009). The Forex market is an informal market which does not have a central trading place (Czinkota et al, 2009). Trade is carried out it is a 24 hour market as it involves financial institutions from around the globe, as trade moves from one financial centre to another (Arnold, 2002). Thus as one market closes in one region or continent another opens in a different place (Arnold, 2002). The major trading centres are in Tokyo, Singapore, London and New York (Waston and Head, 2007). The buyers and sellers of foreign c urrencies included exporters/importers; tourists; fund managers; governments; central banks; speculators and commercial banks (Arnold, 2002). However large commercial banks account for a larger percentage of Forex trading in the currency markets, as they deal currencies on behalf of customers (Arnold, 2002). They also undertake transactions of their own in an attempt to make a profit by speculating on future movements of exchange rates (Arnold, 2002). Foreign Exchange Risk After the demise of the Bretton woods conference (1973) exchange rates were allowed to float freely; exchange rates were no longer fixed and currencies were allowed to float freely in value to each other (Czinkota et al, 2009). However freely floating exchange rate poses problems for investors and firms alike who deal with different currencies as the uncertainty of exchange rate movements can have a positive or negative impact on an investment (Czinkota et al, 2009). Foreign exchange risk also known as currency risk is the â€Å"risk that an entity will be required to pay more (or less) than expected as a result of fluctuations in the exchange rate between its currency and the foreign currency in which payment must be made† (Abor, p.3, 2005). Thus considering the potential variability of Forex and the impact it can have on international investments and international business, irrespective of the business sector, it is clear that Foreign exchange risks can be classed as systematic risks. Forex risk is an un-diversifiable risk as it affects the entire market. Having established the relationship between Forex and systematic risk and understanding that it cannot be diversified the question which presents itself is, what can be done about it? Theory states that the only way out is to hedge this risk (Bartram, 2007), the decision to hedge will be examined in Section 2.7 2.4 Types of Foreign Exchange Exposure There are three types of foreign exchange risks or exposures; Economic exposure, Transaction exposure and Translational exposure (Maurer and Valiani, 2002). Transaction exposure is the risk that arises as a result of an existing contractual agreement involving a commitment in foreign currency, this sort of risk is primarily associated with import or exports (Arnold, 2002). For example a firm which exports goods from the UK to the US; will have an agreement (contract) that the US firm buying the goods will pay for the goods at a later date (could be 30, 60 or 90 days), however changes in the exchange rates to either currency (whether an appreciation or depreciation) will either positive or negative consequences for either firms. Transaction risks also come as a result of firms making foreign investments such as opening subsidiary branches (Arnold, 2002). These risks arise in the form of payment costs associated with constructing or establishing new branches (Arnold, 2002). In order to make the necessary payments, the home-based firm would exchange its home currency for foreign currency, thereby giving rise to potential transaction risk (A rnold, 2002) Translational exposure relates to a firms earnings; it involves a firms accounting practises (Waston and Head, 2007). This risk â€Å"arises from the legal requirement that all firms consolidate their financial statement (balance sheet and income statement) of all worldwide operations annually† (Czinkota et al, p. 334, 2009). This implies that, as firms translate and consolidate foreign assets, liabilities and profits into domestic currency, there is the possibility of the firm experiencing a loss or gain (Waston and Head, 2007). This is mainly an accounting risk and as such give a real indication of the impact of exchange rate fluctuations on the value of a firm (Watson and Head, 2007). Economic exposure impacts a firms long-term cash flow, positively or negatively (Czinkota et al, 2009). This kind of risk not only affects firms involved in international trade but also has an impact on domestic firms as it can also affect the price of commodities sold (Czinkota et al, 2009). Furthermore, this sort of risk also undermines the competitiveness of a firm (Arnold, 2002). It can affect the firms competitive position directly if the home currency appreciates and foreign competitors are able to offer a much cheaper price, compared to the firms products which have become expensive as a result of the currency appreciation (Arnold, 2002). Economic risk can also affect a firms competitive position indirectly even if a firms home currency does not experience adverse movements (Arnold, 2002). For example Arnold (2002) illustrate that a South African firm selling in Hong Kong with a New Zealand firm as its main competitor can lose competitive edge if the New Zealand dollar weakens against the Hong dollar. Thus the products or commodity on offer by the New Zealand firm would be cheaper than that of the South African firm assuming both currencies (South African Rand and New Zealand Dollar) had a similar exchange rate against Hong Kong Dollar. Economic and transaction risk are more related to businesses involved in international trade, translational exposure more to do with accounting practises (Waston and Head, 2007). Consequently these are the foreign exchange exposure that will be focused on. 2.5 Foreign Exchange Risk and Natural Hedging The idea of applying natural hedging strategies as tools to hedge foreign exchange exposure is one that has received a lot of attention in recent times, as the concept focuses on using non-financial methods to mitigate the volatility of future cash flows and possibly add value to the firm (Kim et al, 2006). The various natural hedging strategies are explained below. Netting This technique relates to multi-nationals which have foreign subsidiaries, it involves reducing funds transferred by netting off the transaction between the parent company and the subsidiary firm (Watson and Head, 2007). For example â€Å"if a UK parent owed a subsidiary in Canada and sold C$2.2m of goods to the subsidiary on credit while the Canadian subsidiary is owed C$1.5m by the UK company, instead of transferring a total of C$3.7m the intra-group transfer is the net amount of C$700,00† (Arnold, p. 982, 2002). This implies that rather than both the parent and subsidiary firm managing their exposure separately they opt for a centralised management system to reduce the size of the currency flows. Consequently transaction costs and the cost of purchasing foreign exchange are mitigated (Arnold, 2002). Leading and Lagging This technique involves either settling foreign accounts by either postponing payments (lagging) till the end of the credit period allowed or prepayment (leading) at the beginning of the transaction (Watson and Head, 2007). It functions based on the anticipation a firm has that future exchange rates will either appreciate or depreciate (Czinkota, 2009). Thus if a firm anticipated a depreciation in its home currency, it lead its payments conversely if the firm anticipated an appreciation in exchange rate it would lag its payments. Invoicing in the Domestic Currency This method involves invoicing foreign customers in the firms domestic currency rather than in the foreign currency (Arnold, 2002). What this does is that it shifts the burden of risk to the foreign firm (buyer). Operational and Strategic Methods There is no one singular acceptable definition of operational hedging as it varies according to the context it is been used. Boyabatli and Toktay (2004) in their work, review and discuss a diverse cross section of views on operational hedging, they delve into the similarities in application methods of operational hedging across different academic fields. They discovered that although there were some differences in meaning in various academic fields; operations management, finance, strategy and international business, there were basic characteristics which were similar across all fields. On this basis operational hedging can be described according to its functionality. Bradley and Moles describe it as the decisions firms take in regards to the â€Å"location of their production facilities, sourcing of inputs, the nature and scope of products, strategic financial decisions such as the currency denomination of debt, the firms choice of markets and market segments† (Bradley and Mo les p.29, 2002). It involves the use of non-financial methods to mitigate the volatility of future cash flows and possibly add value to the firm (Kim et al, 2006). The objective is geared towards reducing long-term economic exposures. Operational hedging can be said to be based on the principle of real options. Real options are â€Å"opportunities to delay and adjust investments and operating decisions over time in response to resolution of uncertainty† (Triantis 2000 cited in Boyabatli and Toktay p.6, 2004). 2.6 Hedging with Financial Derivatives The different types of financial derivatives are: Forwards and Futures, Foreign currency Options and Currency Swaps. Forward contract: This enables the business to protect itself from adverse movements in exchange rates by locking in an agreed exchange rate until the agreed date of payment (Brealey, Myers and Allen, 2006). The example given by Horcher and Karen (p.95, 2005) illustrate the concept further; â€Å"a company requires 100 million Japanese yen in three months to pay for imported products. The current spot exchange rate is 115.00 yen per U.S. dollar, and the forward rate is 114.50. The company books a forward contract to buy yen (sell U.S. dollars) in three months time at a price of 114.50 and orders its merchandise. In three months time, the company will use the contract to buy yen at 114.50. At that time, if yen is trading at 117.00 per U.S. dollar, the company will have locked in a price that, with the benefit of hindsight, is worse than current market prices. If three months later yen is at 112.00 per U.S. dollar, the company will have successfully protected itself against a more exp ensive yen. Regardless of price changes, the company has locked in its yen purchase price at the forward rate of 114.50, enabling it to budget its costs with certainty†. Futures Contract: A futures contract refers to an â€Å"agreement to buy or sell a standard quantity of specified financial instrument or foreign currency at a future date at a price agreed between two parties† (Watson and Head, 2007). Although it bears some similarities to the forward contract in that it also locks in the exchange rate, however one major difference is that a forward contract can be used in a wide range of currencies while the futures contract is applicable to a limited number of currencies (Brealey, Myers and Allen, 2006). Foreign currency Options: This gives holders the right to purchase or sell foreign currency under an agreement that allows for the right but not the obligation to undertake the transaction at the agreed future date (Brealey, Myers and Allen, 2006). One key advantage of this method of hedging is that it gives holders the opportunity to take advantage of favourable exchange rate movements (Watson and Head, 2007). However a non-refundable fee on the option known as an option premium is required (Watson and Head, 2007). Currency Swaps: A currency swap is â€Å"an agreement between two parties to exchange principal and interest payments in different currencies over a stated time period† (Watson and Hedge, p. 382, 2007). Basically what this implies is that a firm can gain the use of foreign currency but avoid exchange rate risk which may arise from servicing payments (Watson and Head, 2007). 2.7 A review of Literature on hedging This section critically examines the rationale for hedging foreign exchange risk. The rationale which has been put forward for hedging risk in the existing literature (Judge, 2004) is that it maximises shareholder value. The idea behind hedging any kind of risk in general is that once a firm takes on the responsibility of actively managing risk, shareholder value is increased, thereby increasing the overall value of the firm (Judge, 2004). However finance theory proposes that shareholders are diversified and thus are not willing to pay a premium to firms for adopting hedging policies (Rossi and Laham, 2008). So in that vein, theory proposes that what is actually being maximized is the managers private utility (Tekavcic, Sernic and Spricic, 2008). Essentially finance theory states that shareholders are diversified while managers of firms are not, so in a bid to protect their income and personal asset, which are linked to the firm, they hedge against uncertainty (Baranoff and Brockett, 2008). Within this theory shareholders are willing to take on risk in exchange for greater returns (risk-return trade off) and so they invest in companies which they believe can provide such high returns. Thus managers hedging risks can be said to lead to underinvestment, which then flaws the theory of risk-return trade off (Baranoff and Brockett, 2008). This theory is based on the premise that financial markets are efficient and as such hedging activities of firm would not add value to the firm (Rossi and Laham). In addition to the complexities of the above theory, when the concept of hedging is put into the context of foreign exchange movements; the Law of one price (LOP)/ purchasing power parity (PPP) suggests that identical goods are not affected by exchange rate variations (Hyrina and Serletis, 2008). The law of one price is the foundation of the theory of PPP which posits that similar goods should have identical prices across countries once expressed in a common currency (Hyrina and Serletis, 2008, Czinkota et al, 2009). Numerous studies have been carried out to test whether or not the theory holds, however there is no general consensus as to whether or not the theory is valid. Hyrina and Serletis (2009), Glen (1992), Choi, Laibson and Madrian (2006) found that there are some flaws within the theory as the real exchange rate is not stationary. Engel and Rogers (1996) examines the impact distance has on goods sold and whether the presence of national borders separating locations were these goods are sold, also have any impact on the law of one price. Empirical evidence from the research shows distance and border have significant role to play on the differences in price of goods (Engel and Rogers, 1996). More so, that market segmentation also leads to price differentiation (Engel and Rogers, 1996). This theory just like the first are both based on the principle that the market is efficient and as such inconsistencies such as movements in exchange rate even out in time (Zanna, 2009). Without attempting to disparage the above theories, in regards to the first theory, whether or not hedging is done to propagate the interests of managers, the fact is that, the basis of the theory (Efficient Market) is flawed as there are numerous empirical evidence (Nobile, 2007; Bartram, 2007, Allayannis and Ofek, 2003, Tekavcic et al 2008, Mastry, 2003) to suggest that there are imperfections in the financial market such as high interests rates, inflation, tax and of course foreign exchange movements which can affect a firm. Thus shareholders cannot afford not to be concerned about hedging as these imperfections in the market can affect the cash flow, profit and ultimately the overall value of the firm. Thus in the same vain PPP should not hold. In regards to PPP it is necessary to indicate that there are other factors which affect the price of goods sold across national borders. Bradley (2005) states that the prices of goods for each firm are influenced by numerous factors such as; Government policies, high inflation rates and corporate income tax and thus such prices of goods cannot be the same across different borders. So to state clearly the financial market is not efficient due to market imperfections. Thus movements in foreign exchange can affect the cash flow and overall value of the firm. Consequently it is necessary for firms to focus on how to manage this risk. 2.8 Review of literature on financial derivatives and operational Strategies The extant literatures on hedging exchange rate risks with financial derivatives have focused on corporate risk management. The main thrust of literatures from authors such as Mastry (2003), Bartram et al (2003) and Galum and Roth (1993) have carried out studies which are aimed at finding the optimal financial derivative. However there is no general consensus as to an optimal financial hedging position. The reason for this can related to basic financial theory which suggests that derivative instruments should be chosen based on the degree of exposure of the firm and the payoff that can be gotten from the instrument (Bartram, 2006). Essentially what this implies instruments with linear characteristics such as forwards, futures and swaps should be used for linear exposures, while instruments with nonlinear profiles such as currency options are suitable to hedging nonlinear exposure (Stulz, 2003). Put simply the theory suggests that after firms assess the nature of its exposure, all tha t needs to be done is choose a derivative which matches that exposure. However, contrary to financial theory Bartram (2006), Ianieri (2009) found that as a result of the flexible nature of options, options can be used to hedge various types of exposures and not just nonlinear exposures. Despite these findings, merely identifying the nature of exposure and matching it with a derivative is not enough. There are other factors which influence the decision on what derivatives to use besides the nature of exposure. For instance while an option is flexible and can be adapted to suit various types of exposures, it is also be a highly complex technical method to use. The problem with currency options is that they require highly skilled individuals who can understand and use it effectively. Ianieri (2009) states that even brokers who should know how to use this method have had bad experiences with it. In an alternative view, Masry and Salam (2007) in an attempt to understand the rationale for using financial derivatives found that the size of the firm impacts on a firms decision to use financial derivatives. A study conducted by Judge (2004) shows that there is a positive relationship between the size of the firm and the foreign currency hedging decision. The general idea is that large firms have numerous resources available to them; in terms of personnel and information, and as such they are more likely to hedge using financial derivatives (Judge, 2004). So in essence the transaction costs which accompany the use of derivatives would discourage small firms from opting to hedge with financial derivatives. On the other hand Kim and Sung (2005), Managing Foreign Exchange Risk in International Trade Managing Foreign Exchange Risk in International Trade MANAGING FOREIGN EXCHANGE RISK IN INTERNATIONAL TRADE WITH A FOCUS ON EAST MIDLANDS COMPANIES Abstract The purpose of this research is to investigate how international trade companies in the East Midlands manage foreign exchange risk. This study utilises descriptive statistics in presenting and analysing data from the primary research. The findings of the research indicate that a majority of the firms used broad business strategies in managing their foreign exchange risk. The main problems the firms had with managing foreign exchange risks centred on customer retention and receiving payments on time. The results also indicate that there were a few firms which took an integrated approach to mitigating foreign exchange risk. This research is of value to firms involved in international trade and also business development agencies which seek to assist firms which are planning to enter or are already operating in foreign markets. Chapter 1 Introduction International trade involves exporting and importing of goods or services across foreign borders and, as soon as a firm engages in import and/or export it is exposed to numerous risks. As a result firms operating outside their home country, have to deal with the economic conditions of the foreign country in which it wishes to operate in. One of the key issues firms involved in import and/ or export are faced with is dealing with foreign currency as this is the only means by which the exchange of goods or services is facilitated. To this end it is import to study and understand the impact which foreign currency has on international trade. Following the demise of the Bretton Woods agreement (1971) whereby exchange rates were allowed to float freely, managing foreign exchange has become important (Heakel, 2009). Consequently the prices of currencies were determined by market forces that is, demand for and supply of money (Mastry and Salam, 2007). Due to the constant changes in demand and supply which are in turn influenced by other external factors, fluctuations arise (Czinkota et al, 2009). As a result of these fluctuations firms are exposed to foreign exchange risks also known as currency risks. Firms trading in different currencies are exposed to three types of foreign exchange risks; economic, transaction and translational risk (Czinkota et al, 2009). Firms which are involved in international trade are exposed to economic and transaction risks as they both pose potential threats to the firms cash flow over time (Czinkota et al, 2009). Studies have shown that foreign exchange fluctuations can affect the value of a fi rms cash flow over time (Aretz, Bartram and Dufey, 2007, Judge, 2004, Bradley and Moles 2002, Allayannis and Ofek 1998, Chowdhry, 1995, Damant, 2002 and Wong 2001). More so, domestic firms although not dealing with foreign currency are also affected by foreign exchange fluctuations as the price of the commodity they trade in are also affected (Abor, 2005). Most of the extant literatures have focused on corporate risk management for financial firms and as such financial hedging with derivatives has been the central theme of currency risk management. On the other hand there has been evidence to show alternative methods exist for firms involved in international trade, these methods of managing foreign exchange risks involve strategic and operational risk management. However most of these studies have been carried out in isolation; financial hedging techniques carried out in isolation of strategic and operational hedging methods and vice versa. Little has been done to provide an integrated perspective, on utilising both techniques of managing foreign exchange risks with regards to international trade firms. This is the area in which the present study intends to explore thereby contributing to the overall literature Purpose of the Research Due to the nature of international trade which expose the firm to foreign exchange movements, thus subjecting the firm to currency risks, the purpose of this research is to explore how international trade firms deal with foreign exchange risk. The research focuses how import and export firms in the East Midlands manage their foreign exchange risk. This study also aims to explore the problems involved in managing those risks. Research Questions Consequently the research hopes to answer the following questions: Do import and export firms in the East Midlands actually manage their foreign exchange rate risks? How import and export companies in the East Midlands manage their foreign exchange risks? What problems they encounter with managing these risks? Definition of Key Terms Hedge A hedge can be defined as â€Å"making an investment to reduce the risk of adverse price movements in an asset. Investors use this strategy when they are unsure of what the market will do† (Investopedia, 2010). Derivatives Derivatives are instruments whose performance is derived from an underlying asset (Arnold, 2002) Spot Rate The spot rate is defined as the rate of exchange quoted immediately if buying or selling currency (Watson and Head) International Trade This involves the flow of goods and services between nations; it involves import and/ export of goods and services (Harrison et al, 2000) The subsequent section provides a break down of how rest of the research is set out. Chapter 2: Literature Review; this chapter provides an overview of the research topic by mapping out the key areas; theories within the risk management and finance literature are identified, explored and analysed. The concept of risk and risk management is explored. A broad classification is made on the types of risks and this is then narrowed down to include foreign exchange risk. The chapter proceeds by exploring the concept of foreign exchange and foreign exchange risks; which include the types of foreign exchange exposures. The common techniques for managing foreign exchange risks are explored. This is followed by a review of relevant literature in the key areas of the research topic. Chapter 3: Research Methodology; in this chapter the research design and strategy are discussed. Chapter 4: Research Findings and Analysis; this chapter presents the findings of the research which were obtained from the questionnaire. The findings are presented using tables, graphs and charts, to enable the reader gain a clearer understanding. An analysis of the findings is carried out by cross-tabulating the responses of the respondent in order to observe for any commonalities and/or differences. Chapter 5: Conclusion and Recommendation; this chapter concludes the research and recommendations are made. Chapter 2: Literature Review 2.1 Risk Management- Risk is an intrinsic part of any business, due to unpredictability of the forces which govern business transactions such as political, economic and social conditions; risk is a factor which cannot be completely eliminated (Watson and Head, 2007). Arnold (2002) describes risk as a situation where there is more than just one possible outcome, but a range of potential returns. It can also be defined as the chance that the actual return from an investment will be different than expected (Lamb, 2008). From the above definitions, risk does not necessarily spell doom or does not necessarily have a negative connotation. Markowitz was one of the earliest academics to point this out, by establishing a link between risks and return (risk-return trade-off). Essentially the theory; Modern Portfolio Theory (MPT) involves expected return and the degree of accompanying risk for an investment (Yorke and Droussiotis, 1994). A central theme of this theory is that the greater risk an investor accepts th e higher the potential for increased returns (Yorke and Droussiotis, 1994). While MPT purports a positive correlation between risk and return, the fact that an investment can have a range of possible outcomes is an uncertainty which can be very costly. As a result risk management is also a part and parcel of business. Risk management can be defined as â€Å"the performance of activities designed to minimize the negative impact (cost) of uncertainty (risk) regarding possible losses† (Abor, p.307, 2005). The objectives of risk management are to minimize potential losses, reduce volatility of cash flow thereby protecting earnings (Abor, 2005). While the objective for risk management is to protect companies against financial loss thereby protecting the value of the firm, traditional finance theory such as that proposed by Modigliani and Miller suggests that the market value of a firm is determined by it earning power (Arnold, 2002). The basic assumption of Modigliani and Miller theorem is that in an efficient market; with the absence of taxation, bankrupt cy costs and information asymmetry, the value of the firm is unaffected by its capital structure (Arnold, 2002). However empirical research (list authors) has shown the existence of capital market imperfections, such as taxes, agency problems and financial distress exists thus justifying risk management (Chowdhry, 1995). Furthermore, MPT also suggests that the risk and volatility of an investment portfolio can be reduced, and the gains can be enhanced, all by diversifying the portfolio among several non-correlated assets (Pearce Financial, 2008). That is, investors can maximise their expected return for a given level of risk by diversifying their investments across a range of assets ((McClure, 2006). MPT involves risk management through diversification of investments. In a simplified expression, MPT is based on the idea of not ‘putting all of ones eggs into one basket. 2.2 Types of Risk There are two broad classification of risks; Unsystematic and Systematic (Rossi and Laham, 208) Systematic risks refers to risks which affect the entire market due to events such as; exchange rate movements, changes in the price of commodities, war, recession and interest rates, however Unsystematic risks are risks which are specific to individual companies (reference). These distinctions were made by Sharpe (1960) in addition to Markowitz Modern Portfolio theory (MPT), the rationale behind it was that despite risk management practise through diversification, there were still underlying factors which affected the return potential of an investment portfolio. Chesnay Jondeau (2001) clearly point out that the correlation of assets which Markowitz talks about depends on other underlying factors and that the relationships are dynamic. They further found that major events such as general adverse movements in markets can significantly change the correlations between assets (Chesnay Jondeau, 2001). Empirical studies show that in financial crisis, assets tends to act the same, that is they are more likely to more become positively correlated, moving down at the same time (Ardelean, Brandt and Malik, 2009). Essentially, severe market crises will have a spill over effect and cause investments in several different asset classes or markets to succumb to sudden liquidation (Vocke and Wilde, 2000, Pearce Financial, 2008). However findings from Xing and Howe (2003) are contradictory, their findings show that the failure of previous studies to find a positive risk-return relationship may be as a result of model misspecification. Essentially they found that there was no agreement on the risk-return relationship amongst previous studies which had used data from one market (Xing and Howe, 2003). Thus they argued that the world market should be taken into consideration in assessing risk return-relationship in a partially integrated market (Xing and Howe, 2003). But then it only stands to reason that if markets are integrated partially or wholly, a catastrophic economic cycle such as financial crises would have an adverse effect on the world market. Thus clearly it does not matter how much one diversifies unsystematic risk, the underlying systematic risk is a problematic factor which has to be dealt with. 2.3 Foreign Exchange rate as a Systematic Risk Background Foreign Exchange rate can be defined as the â€Å"price of one currency expressed in terms of another† (Arnold, p.973, 2002). For example, if the exchange rate exchange rate between the European Euro and the Pound is â‚ ¬1.3 =  £ 1.00, this means that  £1 is equivalent to â‚ ¬1.3. Foreign Exchange (Forex) is traded on the foreign exchange market, the purpose of which is to facilitate trade and the exchange of currencies between countries (Czinkota et al, 2009). The Forex market is an informal market which does not have a central trading place (Czinkota et al, 2009). Trade is carried out it is a 24 hour market as it involves financial institutions from around the globe, as trade moves from one financial centre to another (Arnold, 2002). Thus as one market closes in one region or continent another opens in a different place (Arnold, 2002). The major trading centres are in Tokyo, Singapore, London and New York (Waston and Head, 2007). The buyers and sellers of foreign c urrencies included exporters/importers; tourists; fund managers; governments; central banks; speculators and commercial banks (Arnold, 2002). However large commercial banks account for a larger percentage of Forex trading in the currency markets, as they deal currencies on behalf of customers (Arnold, 2002). They also undertake transactions of their own in an attempt to make a profit by speculating on future movements of exchange rates (Arnold, 2002). Foreign Exchange Risk After the demise of the Bretton woods conference (1973) exchange rates were allowed to float freely; exchange rates were no longer fixed and currencies were allowed to float freely in value to each other (Czinkota et al, 2009). However freely floating exchange rate poses problems for investors and firms alike who deal with different currencies as the uncertainty of exchange rate movements can have a positive or negative impact on an investment (Czinkota et al, 2009). Foreign exchange risk also known as currency risk is the â€Å"risk that an entity will be required to pay more (or less) than expected as a result of fluctuations in the exchange rate between its currency and the foreign currency in which payment must be made† (Abor, p.3, 2005). Thus considering the potential variability of Forex and the impact it can have on international investments and international business, irrespective of the business sector, it is clear that Foreign exchange risks can be classed as systematic risks. Forex risk is an un-diversifiable risk as it affects the entire market. Having established the relationship between Forex and systematic risk and understanding that it cannot be diversified the question which presents itself is, what can be done about it? Theory states that the only way out is to hedge this risk (Bartram, 2007), the decision to hedge will be examined in Section 2.7 2.4 Types of Foreign Exchange Exposure There are three types of foreign exchange risks or exposures; Economic exposure, Transaction exposure and Translational exposure (Maurer and Valiani, 2002). Transaction exposure is the risk that arises as a result of an existing contractual agreement involving a commitment in foreign currency, this sort of risk is primarily associated with import or exports (Arnold, 2002). For example a firm which exports goods from the UK to the US; will have an agreement (contract) that the US firm buying the goods will pay for the goods at a later date (could be 30, 60 or 90 days), however changes in the exchange rates to either currency (whether an appreciation or depreciation) will either positive or negative consequences for either firms. Transaction risks also come as a result of firms making foreign investments such as opening subsidiary branches (Arnold, 2002). These risks arise in the form of payment costs associated with constructing or establishing new branches (Arnold, 2002). In order to make the necessary payments, the home-based firm would exchange its home currency for foreign currency, thereby giving rise to potential transaction risk (A rnold, 2002) Translational exposure relates to a firms earnings; it involves a firms accounting practises (Waston and Head, 2007). This risk â€Å"arises from the legal requirement that all firms consolidate their financial statement (balance sheet and income statement) of all worldwide operations annually† (Czinkota et al, p. 334, 2009). This implies that, as firms translate and consolidate foreign assets, liabilities and profits into domestic currency, there is the possibility of the firm experiencing a loss or gain (Waston and Head, 2007). This is mainly an accounting risk and as such give a real indication of the impact of exchange rate fluctuations on the value of a firm (Watson and Head, 2007). Economic exposure impacts a firms long-term cash flow, positively or negatively (Czinkota et al, 2009). This kind of risk not only affects firms involved in international trade but also has an impact on domestic firms as it can also affect the price of commodities sold (Czinkota et al, 2009). Furthermore, this sort of risk also undermines the competitiveness of a firm (Arnold, 2002). It can affect the firms competitive position directly if the home currency appreciates and foreign competitors are able to offer a much cheaper price, compared to the firms products which have become expensive as a result of the currency appreciation (Arnold, 2002). Economic risk can also affect a firms competitive position indirectly even if a firms home currency does not experience adverse movements (Arnold, 2002). For example Arnold (2002) illustrate that a South African firm selling in Hong Kong with a New Zealand firm as its main competitor can lose competitive edge if the New Zealand dollar weakens against the Hong dollar. Thus the products or commodity on offer by the New Zealand firm would be cheaper than that of the South African firm assuming both currencies (South African Rand and New Zealand Dollar) had a similar exchange rate against Hong Kong Dollar. Economic and transaction risk are more related to businesses involved in international trade, translational exposure more to do with accounting practises (Waston and Head, 2007). Consequently these are the foreign exchange exposure that will be focused on. 2.5 Foreign Exchange Risk and Natural Hedging The idea of applying natural hedging strategies as tools to hedge foreign exchange exposure is one that has received a lot of attention in recent times, as the concept focuses on using non-financial methods to mitigate the volatility of future cash flows and possibly add value to the firm (Kim et al, 2006). The various natural hedging strategies are explained below. Netting This technique relates to multi-nationals which have foreign subsidiaries, it involves reducing funds transferred by netting off the transaction between the parent company and the subsidiary firm (Watson and Head, 2007). For example â€Å"if a UK parent owed a subsidiary in Canada and sold C$2.2m of goods to the subsidiary on credit while the Canadian subsidiary is owed C$1.5m by the UK company, instead of transferring a total of C$3.7m the intra-group transfer is the net amount of C$700,00† (Arnold, p. 982, 2002). This implies that rather than both the parent and subsidiary firm managing their exposure separately they opt for a centralised management system to reduce the size of the currency flows. Consequently transaction costs and the cost of purchasing foreign exchange are mitigated (Arnold, 2002). Leading and Lagging This technique involves either settling foreign accounts by either postponing payments (lagging) till the end of the credit period allowed or prepayment (leading) at the beginning of the transaction (Watson and Head, 2007). It functions based on the anticipation a firm has that future exchange rates will either appreciate or depreciate (Czinkota, 2009). Thus if a firm anticipated a depreciation in its home currency, it lead its payments conversely if the firm anticipated an appreciation in exchange rate it would lag its payments. Invoicing in the Domestic Currency This method involves invoicing foreign customers in the firms domestic currency rather than in the foreign currency (Arnold, 2002). What this does is that it shifts the burden of risk to the foreign firm (buyer). Operational and Strategic Methods There is no one singular acceptable definition of operational hedging as it varies according to the context it is been used. Boyabatli and Toktay (2004) in their work, review and discuss a diverse cross section of views on operational hedging, they delve into the similarities in application methods of operational hedging across different academic fields. They discovered that although there were some differences in meaning in various academic fields; operations management, finance, strategy and international business, there were basic characteristics which were similar across all fields. On this basis operational hedging can be described according to its functionality. Bradley and Moles describe it as the decisions firms take in regards to the â€Å"location of their production facilities, sourcing of inputs, the nature and scope of products, strategic financial decisions such as the currency denomination of debt, the firms choice of markets and market segments† (Bradley and Mo les p.29, 2002). It involves the use of non-financial methods to mitigate the volatility of future cash flows and possibly add value to the firm (Kim et al, 2006). The objective is geared towards reducing long-term economic exposures. Operational hedging can be said to be based on the principle of real options. Real options are â€Å"opportunities to delay and adjust investments and operating decisions over time in response to resolution of uncertainty† (Triantis 2000 cited in Boyabatli and Toktay p.6, 2004). 2.6 Hedging with Financial Derivatives The different types of financial derivatives are: Forwards and Futures, Foreign currency Options and Currency Swaps. Forward contract: This enables the business to protect itself from adverse movements in exchange rates by locking in an agreed exchange rate until the agreed date of payment (Brealey, Myers and Allen, 2006). The example given by Horcher and Karen (p.95, 2005) illustrate the concept further; â€Å"a company requires 100 million Japanese yen in three months to pay for imported products. The current spot exchange rate is 115.00 yen per U.S. dollar, and the forward rate is 114.50. The company books a forward contract to buy yen (sell U.S. dollars) in three months time at a price of 114.50 and orders its merchandise. In three months time, the company will use the contract to buy yen at 114.50. At that time, if yen is trading at 117.00 per U.S. dollar, the company will have locked in a price that, with the benefit of hindsight, is worse than current market prices. If three months later yen is at 112.00 per U.S. dollar, the company will have successfully protected itself against a more exp ensive yen. Regardless of price changes, the company has locked in its yen purchase price at the forward rate of 114.50, enabling it to budget its costs with certainty†. Futures Contract: A futures contract refers to an â€Å"agreement to buy or sell a standard quantity of specified financial instrument or foreign currency at a future date at a price agreed between two parties† (Watson and Head, 2007). Although it bears some similarities to the forward contract in that it also locks in the exchange rate, however one major difference is that a forward contract can be used in a wide range of currencies while the futures contract is applicable to a limited number of currencies (Brealey, Myers and Allen, 2006). Foreign currency Options: This gives holders the right to purchase or sell foreign currency under an agreement that allows for the right but not the obligation to undertake the transaction at the agreed future date (Brealey, Myers and Allen, 2006). One key advantage of this method of hedging is that it gives holders the opportunity to take advantage of favourable exchange rate movements (Watson and Head, 2007). However a non-refundable fee on the option known as an option premium is required (Watson and Head, 2007). Currency Swaps: A currency swap is â€Å"an agreement between two parties to exchange principal and interest payments in different currencies over a stated time period† (Watson and Hedge, p. 382, 2007). Basically what this implies is that a firm can gain the use of foreign currency but avoid exchange rate risk which may arise from servicing payments (Watson and Head, 2007). 2.7 A review of Literature on hedging This section critically examines the rationale for hedging foreign exchange risk. The rationale which has been put forward for hedging risk in the existing literature (Judge, 2004) is that it maximises shareholder value. The idea behind hedging any kind of risk in general is that once a firm takes on the responsibility of actively managing risk, shareholder value is increased, thereby increasing the overall value of the firm (Judge, 2004). However finance theory proposes that shareholders are diversified and thus are not willing to pay a premium to firms for adopting hedging policies (Rossi and Laham, 2008). So in that vein, theory proposes that what is actually being maximized is the managers private utility (Tekavcic, Sernic and Spricic, 2008). Essentially finance theory states that shareholders are diversified while managers of firms are not, so in a bid to protect their income and personal asset, which are linked to the firm, they hedge against uncertainty (Baranoff and Brockett, 2008). Within this theory shareholders are willing to take on risk in exchange for greater returns (risk-return trade off) and so they invest in companies which they believe can provide such high returns. Thus managers hedging risks can be said to lead to underinvestment, which then flaws the theory of risk-return trade off (Baranoff and Brockett, 2008). This theory is based on the premise that financial markets are efficient and as such hedging activities of firm would not add value to the firm (Rossi and Laham). In addition to the complexities of the above theory, when the concept of hedging is put into the context of foreign exchange movements; the Law of one price (LOP)/ purchasing power parity (PPP) suggests that identical goods are not affected by exchange rate variations (Hyrina and Serletis, 2008). The law of one price is the foundation of the theory of PPP which posits that similar goods should have identical prices across countries once expressed in a common currency (Hyrina and Serletis, 2008, Czinkota et al, 2009). Numerous studies have been carried out to test whether or not the theory holds, however there is no general consensus as to whether or not the theory is valid. Hyrina and Serletis (2009), Glen (1992), Choi, Laibson and Madrian (2006) found that there are some flaws within the theory as the real exchange rate is not stationary. Engel and Rogers (1996) examines the impact distance has on goods sold and whether the presence of national borders separating locations were these goods are sold, also have any impact on the law of one price. Empirical evidence from the research shows distance and border have significant role to play on the differences in price of goods (Engel and Rogers, 1996). More so, that market segmentation also leads to price differentiation (Engel and Rogers, 1996). This theory just like the first are both based on the principle that the market is efficient and as such inconsistencies such as movements in exchange rate even out in time (Zanna, 2009). Without attempting to disparage the above theories, in regards to the first theory, whether or not hedging is done to propagate the interests of managers, the fact is that, the basis of the theory (Efficient Market) is flawed as there are numerous empirical evidence (Nobile, 2007; Bartram, 2007, Allayannis and Ofek, 2003, Tekavcic et al 2008, Mastry, 2003) to suggest that there are imperfections in the financial market such as high interests rates, inflation, tax and of course foreign exchange movements which can affect a firm. Thus shareholders cannot afford not to be concerned about hedging as these imperfections in the market can affect the cash flow, profit and ultimately the overall value of the firm. Thus in the same vain PPP should not hold. In regards to PPP it is necessary to indicate that there are other factors which affect the price of goods sold across national borders. Bradley (2005) states that the prices of goods for each firm are influenced by numerous factors such as; Government policies, high inflation rates and corporate income tax and thus such prices of goods cannot be the same across different borders. So to state clearly the financial market is not efficient due to market imperfections. Thus movements in foreign exchange can affect the cash flow and overall value of the firm. Consequently it is necessary for firms to focus on how to manage this risk. 2.8 Review of literature on financial derivatives and operational Strategies The extant literatures on hedging exchange rate risks with financial derivatives have focused on corporate risk management. The main thrust of literatures from authors such as Mastry (2003), Bartram et al (2003) and Galum and Roth (1993) have carried out studies which are aimed at finding the optimal financial derivative. However there is no general consensus as to an optimal financial hedging position. The reason for this can related to basic financial theory which suggests that derivative instruments should be chosen based on the degree of exposure of the firm and the payoff that can be gotten from the instrument (Bartram, 2006). Essentially what this implies instruments with linear characteristics such as forwards, futures and swaps should be used for linear exposures, while instruments with nonlinear profiles such as currency options are suitable to hedging nonlinear exposure (Stulz, 2003). Put simply the theory suggests that after firms assess the nature of its exposure, all tha t needs to be done is choose a derivative which matches that exposure. However, contrary to financial theory Bartram (2006), Ianieri (2009) found that as a result of the flexible nature of options, options can be used to hedge various types of exposures and not just nonlinear exposures. Despite these findings, merely identifying the nature of exposure and matching it with a derivative is not enough. There are other factors which influence the decision on what derivatives to use besides the nature of exposure. For instance while an option is flexible and can be adapted to suit various types of exposures, it is also be a highly complex technical method to use. The problem with currency options is that they require highly skilled individuals who can understand and use it effectively. Ianieri (2009) states that even brokers who should know how to use this method have had bad experiences with it. In an alternative view, Masry and Salam (2007) in an attempt to understand the rationale for using financial derivatives found that the size of the firm impacts on a firms decision to use financial derivatives. A study conducted by Judge (2004) shows that there is a positive relationship between the size of the firm and the foreign currency hedging decision. The general idea is that large firms have numerous resources available to them; in terms of personnel and information, and as such they are more likely to hedge using financial derivatives (Judge, 2004). So in essence the transaction costs which accompany the use of derivatives would discourage small firms from opting to hedge with financial derivatives. On the other hand Kim and Sung (2005),