As part of their CFO Insights series, Deloitte published a report on hidden foreign exchange (FX) risk in 2016. In it, Deloitte note that, "With the US dollar's continued strength against other major currencies, organizations are facing pressure to address related risks, such as foreign exchange (FX) exposure identification and visibility into those exposures.

" Define and explain the three main different types of FX exposure multinational organizations face.

 

b) In its 2021 Annual Report, Netflix noted that, "Revenues denominated in currencies other than the U.S. dollar account for 57% of the consolidated amount [consolidated revenues] for the year ended December 31, 2021...Accordingly, changes in exchange rates, and in particular a weakening of foreign currencies relative to the U.S. dollar may negatively affect our revenue and operating income as expressed in U.S. dollars." Explain the type or types of exposure that Netflix might be exposed to here.

Should Netflix and Netflix's shareholders be concerned about this type or these types of exposure? Explain why they should or should not be.

 

c) Netflix regularly state that as a company, they do not use financial derivatives to manage their exchange rate exposure.

Explain the non-financial alternatives (alternatives that do not involve the use of derivatives or the money markets) that are available to multinational companies like Netflix to manage their exchange rate exposure, stating and briefly explaining which exposure you think is being managed for each alternative.