CA7006 - Finance & Forecasting for Airline Operations - Accounting and Finance Assignment Help

Assignment Task

FOREIGN CURRENCY AND FUEL PRICE EXPOSURE

• International airlines sell tickets in many different countries and currencies.

• They incur operating expenses in in the currencies of the countries they serve.

• It would be impossible for there to be a perfect match in both amounts and timing of foreign currency receipts and expenses.

• An airline’s treasury has got the task of managing revenues, expenditures, assets and liabilities in both the local and foreign currencies and thus minimising the risks of exposure to large currency movements.

Fluctuations occur because of the changes in the the supply and demand for the currency.

• Purchasing power theory states that , essentially, under liberalised international trade a basket of goods in one country should cost the same as a basket of goods in another country.

• If domestic prices rise in one country, then the exchange rate between that country and another should change so as to restore the price equality between the two baskets.

• This normally does not happen even in the long term because of the increasing element of goods and services that are not traded internationally in the basket of typical domestic exposure.

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