Does Life Have a Meaning? Essays -- Philosophy Philosophical Essays

Does Life Have a Meaning? Life, it might be argued, is the distinguishing feature of all organisms and may most usefully be thought of as involving various kinds of complex systems of organization providing individual organisms with the ability to make use of those energy sources available to them for both self maintenance and reproduction. Underlying this deceptively persuasive definition, however, lie those persistent traditional problems inherent in the search for an essential, distinctive substance characteristic of all forms of life. Additionally, as evolution theory makes clear, there is the problem of borderline instances, organisms of which it is not easy to say whether or not they may be defined as being alive. One such case is that of the virus. Viruses are the smallest, simplest living things, smaller than bacteria, and the cause of some of the deadliest diseases known to humanity. They are composed chiefly of nucleic acid wrapped in a coat of protein and are able to multiply only from within living cells. As with all other organisms, the virus depends for its ability to obtain energy and carry out the other processes necessary to sustain life, upon its stock of DNA, the hereditary material that makes up the genes, the "instructions" that determine the traits of every living organism. What is interesting about viruses, however, is that their genetic stock is very meagre indeed, so much so that reliance upon it alone cannot enable them to survive. Nonetheless, viruses do persist from one generation to the next, as if they were alive. How this is managed, as it clearly is in both plants, animals and human beings, bears importantly upon the ways in which "life", at least in the case of viruses, may legitimately b... ... our ability not only to understand our human limitations, but also to appreciate their unimportance in our situation: "If sub specie aeternitatis there is no reason to believe that anything matters, then that doesn't matter either, and we can approach our absurd lives with irony instead of heroism or despair." Bibliography: Brian, Denis Einstein: A Life John Wiley and Sons, Inc., 1996 Hanfling, Oswald (ed.) Life and Meaning: A Reader Blackwell F, Open University, 1987 Mill, John Stuart Utilitarianism Dent Dutton (Everyman), 1962 Plato Gorgias trans. Hamilton, W., Penguin, 1960 Russell, Bertrand History of Western Philosophy Allen and Unwin, 1962 Works consulted following initial assessment of essay: Murdoch, Iris The Sovereignty of Good Routledge, 1991 Nagel, Thomas The Possibility of Altruism Princeton Paperback, 1978 Does Life Have a Meaning? Essays -- Philosophy Philosophical Essays Does Life Have a Meaning? Life, it might be argued, is the distinguishing feature of all organisms and may most usefully be thought of as involving various kinds of complex systems of organization providing individual organisms with the ability to make use of those energy sources available to them for both self maintenance and reproduction. Underlying this deceptively persuasive definition, however, lie those persistent traditional problems inherent in the search for an essential, distinctive substance characteristic of all forms of life. Additionally, as evolution theory makes clear, there is the problem of borderline instances, organisms of which it is not easy to say whether or not they may be defined as being alive. One such case is that of the virus. Viruses are the smallest, simplest living things, smaller than bacteria, and the cause of some of the deadliest diseases known to humanity. They are composed chiefly of nucleic acid wrapped in a coat of protein and are able to multiply only from within living cells. As with all other organisms, the virus depends for its ability to obtain energy and carry out the other processes necessary to sustain life, upon its stock of DNA, the hereditary material that makes up the genes, the "instructions" that determine the traits of every living organism. What is interesting about viruses, however, is that their genetic stock is very meagre indeed, so much so that reliance upon it alone cannot enable them to survive. Nonetheless, viruses do persist from one generation to the next, as if they were alive. How this is managed, as it clearly is in both plants, animals and human beings, bears importantly upon the ways in which "life", at least in the case of viruses, may legitimately b... ... our ability not only to understand our human limitations, but also to appreciate their unimportance in our situation: "If sub specie aeternitatis there is no reason to believe that anything matters, then that doesn't matter either, and we can approach our absurd lives with irony instead of heroism or despair." Bibliography: Brian, Denis Einstein: A Life John Wiley and Sons, Inc., 1996 Hanfling, Oswald (ed.) Life and Meaning: A Reader Blackwell F, Open University, 1987 Mill, John Stuart Utilitarianism Dent Dutton (Everyman), 1962 Plato Gorgias trans. Hamilton, W., Penguin, 1960 Russell, Bertrand History of Western Philosophy Allen and Unwin, 1962 Works consulted following initial assessment of essay: Murdoch, Iris The Sovereignty of Good Routledge, 1991 Nagel, Thomas The Possibility of Altruism Princeton Paperback, 1978

Alfred Adler and His Personality Theory

Alfred Adler was born in the suburbs of Vienna to a grain merchant and his wife on the 7th February 1870. He was the third child and second son of his parents. He could not walk until the age of four due to his lingering rickets. At the age of five, he went down with a chronic pneumonia which nearly took his life, and on recovery, resolved to become a medical doctor, even at the very young age.He retained this ambition throughout his school years, although he was merely an averagely clever student who, due to a period of lack of seriousness with and loss of commitment to his studies, tended towards becoming a dullard. This tendency made his teacher write him off as one not cut out for academic success— and his woeful performance at Mathematics seemed to testify to this pronouncement. However, his father’s belief in his abilities and his own self-assurance and self-esteem spurred him on to renewed commitment and revival.He proved his teacher’s pronouncement wrong: Not only did he rise to become the best Mathematics student, he pursued his medical ambition to the University of Vienna where he achieved his medical degree. During his schooling years, Adler was â€Å"quite outgoing, popular and active† (Boeree, George, 2006).He had a strong personality and firm resolution (qualities which explain why he could sustain and realize his medical ambition in the face of his teacher’s despise and pessimism). Adler began his medical career as an opthamologist, but later turned to general medical practice.He established his office somewhere in the lower class part of Vienna, across from an amusement park-cum-circus. Most of his clients and patients were circus performers. This fact gave him the opportunity to observe, study and investigate their unusual strengths and weaknesses, which they demonstrated through their relative physiological resistances and tolerance, leading him to the formulation of a theory he termed â€Å"organic inferior ities and compensations†. He later switched to psychiatry and joined Freud’s discussion group.In this group, he got the opportunity to develop and articulate his organic theory, to which Freud agreed; however, his subsequent theory of the aggression instinct were against Frend’s beliefs, just as was his suggestion that the sexual notions which Freud upheld should be taken figuratively rather than literally.Alfred Adler sought to investigate the human personality and behaviour: what fundamentally made up the human personality and what made all human beings behave the way they did, irrespective of their backgrounds, individualities, privileges or lack of them.His conclusions, he formulated as a theory of personality In the course of the Second World War, Alfred became a Physician for the Austrian army, first serving on the Russian front before moving to the children’s hospital. This change gave him the opportunity for a first-hand observation of the war vict ims and causalities.It probably was the shock and horror from these direct observations that made him develop an interest in the concept of social interest, coming to the conclusion that â€Å"if humanity was to survive, it had to change its ways. † (George B, 2006).In 1926, he went to the United States to work as a lecturer. He died of heart attack in 1937 in the course of his lecturing.ALFRED ADLER’S PERSONALITY THEORYAlfred Adler’s theory of personality offers the underlying motivation not only of all human behavior but also for the development of the human personality. He postulated ‘a single â€Å"drive† or motivating force behind all our behavior and experience’ (Boeree, 2006). He believed that every human action, rational or irrational, arises out of an urge for perfection, out of an underlying desire for the attainment of some ideal.However, because he believed no two human beings are exactly alike, even in their responses to this â⠂¬Å"single† drive, he called this theory â€Å"Individual Psychology. † The â€Å"ideal†, also termed â€Å"perfection†, however, points to an ultimate image of himself that every individual often unconsciously harbors as the goal to which he or she must attain.Adler termed this ultimate image â€Å"fictional finalism† (Alfred Adler (1870-1937), 2007). Thus, every human action or behavior, according to Adler, is an attempt to draw nearer to the realization of his or her potentials and, ultimately, to realization of the â€Å"fictional finalism†.This attempt, which he called â€Å"striving for perfection†, is sometimes referred to as â€Å"striving for superiority† (Alfred Adler (1870-1937), 2007) ,to give it the suggestion of something attainable and realizable, and to distinguish it from the impracticality of idealism and perfectionism (â€Å"in psychology, [idealism and perfectionism]) are often given a rather negative connot ation. Perfection and ideals are, practically by definition, things you can't reach. Many people, in fact, live very sad and painful lives trying to be perfect!† ([Boeree, 2006]).â€Å"Superiority† in the above context refers to a state or situation towards which every human action is directed—be it the satisfaction of a physical instinct, meeting financial or cultural obligations or working towards the realization of a political objective.A â€Å"superiority† or â€Å"betterment† is always in view, motivating the action. ‘According to Adler â€Å"We all wish to overcome difficulties. We all strive to reach a goal by the attainment of which we shall feel strong, superior, and complete. â€Å"’ (Alfred Adler (1870-1937), 2007).The striving towards â€Å"superiority† is therefore driven by the fundamental and all-inspiring striving towards the realization of â€Å"fictional finalism†. The â€Å"fictional finalism† i s the hidden force that drives, motivates, informs and decides. It induces the urge for self-improvement. It is the spirit of all actions, however commonplace or ordinary, the heart of every aspiration, determining the range of all material or immaterial acquisitions— of all â€Å"treasures†: it defines them and â€Å"draws them to itself† in an attempt towards self-fulfillment and self- realization. Thus, â€Å"Where your treasure is, there will your heart also be† (Mathew 6:21).ASPECTS OF ALFRED ALDER’S THEORYFour aspects of Alder Alfred’s theory have been identified: The development of personality, striving towards superiority, psychological health and unity of personality (Fisher, 2001).THE DEVELOPMENT OF PERSONALITYThe development of personality begins in childhood, with the â€Å"striving for superiority† referred to above and the at-first unconscious attempts towards the realization of potentials: â€Å"children observe more c ompetent elders around them and this motivates them to acquire new skills and develop new talents (Weiten, 1992, p. 484). † (Alfred Adler (1870-1937), 2007).These attempts at acquisition of new skills and development of new talents, Adler attributes to a healthy feeling of inferiority – inferiority to the elders who have cultivated and now exhibit such skills and talents, and who now stand to be â€Å"looked up to† ( being â€Å"superior†) by the children. With time, as the potentials develop, and age and physical maturity advance, fictional finalism in the developing child makes itself increasingly felt, with such fundamental accompanying manifestations as the urge for self-assertion and the associated desire to have to control over one’s life, enjoying freedom of individuality.â€Å"People [become] focused on maintaining control over their lives. † (Fisher, 2001). These manifestations are perhaps better recognized in such phenomena later in the child’s life as: an uncompromising choice of career or life partner; inflexible pursuits of a political or sport ambition, or the devotion to some preoccupying or obsessing religious or even recreational cause.Interference or intrusion in the pursuit of these individual assertions of personality are naturally resisted by the man or woman in question, because hand in hand with the self-assertive realizations of the fictional- finalism urges goes a desire to retain control over one’s life. Acquiescing to such interferences is, therefore, unnatural for a personality.STRIVING TOWARDS SUPERIORITYSuperiority, according to Adler Alfred, is not â€Å"superior over, not competition† (Adler Alfred’s â€Å"individual Psychology†).It is, rather, a healthy urge towards self-fulfillment and self-actualization.. Every endeavor, every attempt to achieve or merely to do something is, consequently, an attempt to attain to higher or â€Å"superior† levels of personality development—an â€Å"upward movement† or â€Å"ascent† to a better situation or condition of physical, mental or psychological state. Striving towards superiority is, thus, an integral part of living; it is â€Å"innate in the sense that it is a part of life.Trhoughout [sic] a person's life, Adler believed [a person] is motivated by the need to overcome the sense of inferiority and strive for ever higher levels of development. † (Adler Alfred’s â€Å"individual Psychology†). The striving for superiority begins with the spirit of the following Biblical recommendation: Thorns and snares are in the way of the froward: he that doth keep his soul [as well as his mind, drives and impulses] shall be far from them.Train up a child in the way he should go: and when he is old he will not depart from it. (Proverbs 22: 5-6). In the first sentence, â€Å"keeping† of the soul – and by implication, the mind, drives and impulse s – suggests the significance of early childhood upbringing to the development of the personality. â€Å"The froward† is deducibly the individual of an unhealthy personality, one who does not â€Å"keep†, i. e. , pay attention to and take care of, the nature and promptings of his or her inherent fictional finalism.The next sentence contains a practical, resolving recommendation: â€Å"Train up a child in the way he should go: and when he is old he will not depart from it† Two suggestions are perhaps apparent from this recommendation: one, that the social, educational and moral upbringing of the child is fundamental to the health of its drives and impulses (to its â€Å"soul†), and, consequently, to the direction of its fictional finalism (the entirety of its pursuits, habits, peculiarities and voluntary socialization); two, that the image of the fictional finalism is composed essentially of the childhood orientation, which more or less â€Å"compe ls† the child to keep to paths of this image later in life, that is, â€Å"prevents† the child from â€Å"departing from it when he is old†.This deduction does not, however, lessen the force of Adler’s assertion of individuality of personality; for the quite observable fact that no two children are exactly alike suggests that the individuality of the child plays a role in its adaptation to and development through its childhood orientation. Identical twins under identical childhood upbringing will therefore never develop identically.While they might demonstrate similar good or bad upbringing, they will certainly not behave or think alike, nor will they aspire towards identical self-realizations. Therefore, â€Å"striving towards superiority† depends more on the individuality of the child and its upbringing than on the social, educational or cultural influences to which the child may be later subjected.PSYCHOLOGICAL HEALTHThe psychological health of a personality depends on a number of factors suggested by the concept of â€Å"striving towards superiority† and by the fact that â€Å"Everyone feels inferior to a degree, which motivates us to get better†¦Ã¢â‚¬  (Alfred Adler (1870-1937), 2007). These factors include:(i) Healthy inferiority feelings.(ii) Positive fictional finalism.(iii) Absence of idealism and perfectionism.In the light of the preceding subsections, these factors indicate the relevance of the assertion that â€Å"Good understanding giveth favour; but the way of transgressors is hard. † (Proverbs 13:15). Ensuring health of inferiority feelings, helping the development of a positive fictional finalism and working towards the absence of idealism and perfectionism, all naturally require â€Å"good understanding† of the workings of the personality . Such an understanding will prevent the development of a â€Å"hard†, â€Å"transgressing† personality—a personality overste pping all limits of rationality and propriety in the urges and the actualization of its self-image.(i) Healthy Inferiority feelings: Adler was said (Fisher, M. 2001) to describe inferiority feelings as â€Å"feelings of lack of worth†, which he believed to motivate the individual towards striving for superiority. However, as with everything, there are healthy and unhealthy inferiority feelings.These two kinds are naturally to be differentiated through the nature of the psychological and impulsive effects each induces. Healthy inferiority feelings, as is shown above, are progressive; unhealthy inferiority feelings, retrogressive. Unhealthy inferiority feelings can be named apart from healthy inferiority feelings by terming them â€Å"inferiority complex†, which Oxford Talking Dictionary (1998) defines as â€Å"an unrealistic feeling of general inadequacy caused by actual or supposed inferiority in one sphere†¦Ã¢â‚¬ The lack of â€Å"reality† in these feeli ngs already marks them as undesirable and counter-productive. Further in support of their undesirableness is the statement from Brainmeta (2007): People might cope with an inferiority complex by becoming tentative, helpless, and lazy, or by engaging in behavior, called overcompensation.Overcompensation involves trying to hide one's sense of inferiority from others and even from oneself. People who overcompensate might be vocal about their successes and qualities and exaggerate them. Also, they tend to get wrapped up in status, power, and materialism. They believe all of these things give the appearance of superiority (Weiten, 1992, p. 484). †The fostering and the sustenance of healthy inferiority feelings, as is suggested by the excerpt from the Book of Proverbs above, demand knowledge or â€Å"good understanding† of personality psychology—knowledge of such social and familial conditions as might cause psychological and personality irregularities. One source of s uch good knowledge is the implications or ramifications of Adler Alfred’s theories of personality and his assertions in the process of formulating these theories. For instance, Adler was said (Fisher, 2001) to maintain â€Å"that personality difficulties are rooted in a feeling of inferiority deriving from restrictions on the individual's need for self-assertion. † This statement clearly recommends freedom of self-assertion for children and adults alike.However, marrying this suggested recommendation to that of the Book of Proverbs excerpted above (which is another source of â€Å"good understanding†) modifies this recommendation and keeps it within limits: it suggests that freedom of assertion must be within the limits of a sound upbringing and realistic self-discipline.(ii) Positive fictional finalism and (iii) Absence of Idealism and Perfectionism are both clearly dependent on the existence of healthy inferiority feelings. The soul of all aspirations resides as much in the impulses of inferiority feelings as it does in those of fictional finalism. In other words, an individual’s fictional finalism determines the nature (and, therefore, the health) of his or her inferiority feelings.Idealism and perfectionism, as has been suggested above, can lead to tormenting self-criticisms due to the high expectations their bearer has of him or herself. It is understandable that both can derive from an attempt to overcompensate for inferiority complex— to make up for the unhealthy inferiority feelings that have developed from an unhealthy personality.UNITY OF PERSONALITYWith his postulates that there is ‘a single â€Å"drive† or motivating force behind all our behavior and experience’ (Boeree, 2006), and that â€Å"the conscious and unconscious worked together to achieve the goals of self-improvement and fictional finalism† (Alfred Adler (1870-1937), 2007), Alfred Adler suggested the existence of unity of pers onality.First, if the conscious and the unconscious work towards the common goal of self-improvement and fictional finalism, then every conscious feeling, thought, or emotion of a human being, be they pleasant or unpleasant, unite with his or her every unconscious feeling or emotion towards the fulfillment of these goals. The goal, however, is always striven towards, since it is the â€Å"motivating force behind all †¦ behaviour and experience† (Boeree, 2006).Consequently, every conscious feeling and thought is unceasingly in union and co-operation with every unconscious feeling and thought towards the attainment of the common goal of self-actualization. Second, if the conscious and the unconscious are, consequently, unceasingly united, it follows that the goals of self-improvement and of fictional finalism are in a ceaseless union.However, â€Å"Adler postulated that, beyond general [self-] improvement, each person has an ideal image they are trying to achieve†¦. This image of the perfect self is called the fictional finalism (Elverud, 1997). † † (Alfred Adler (1870-1937), 2007). Consequently, standing â€Å"beyond† the goal of â€Å"general improvement† (and connected with this goal), fictional finalism unites the urge for self-improvement, the conscious and the unconscious for a common purpose, and therefore forms the centerpiece of every drive and impulse of the personality. Therefore, unity of personality is the joint striving of every conscious and unconscious emotion, thought, feeling and action towards ultimate self-actualization.Adler therefore believed that there is an agreement among every aspiring, desiring, thinking, and acting of a human being: that unhealthy feelings of inferiority indicate the existence of unhealthy fictional finalism; that a restricted self-assertion and incomplete control of ones life can be recognized through the restricted thinking, feeling and acting of the individual in question ; that the extent of the realization of potentials is reflected in the extent of freedom of thought, opinion, speech and action of an individual†¦These deductions find support in a figurative appreciation of the following Biblical excerpt: â€Å"Every man is brutish in his knowledge: every founder is confounded by the graven image: for his molten image is falsehood, and there is no breath in them. † (Jeremiah 10:14). If the â€Å"graven image† is taken as the image of a dead, i. e. unrealistic fictional finalism, then the personality harboring such an image is bound to be â€Å"confounded† in his aspirations and his opinions, â€Å"brutish† in his outlook and expectations, and â€Å"false† in his interactions with fellow human beings.A practical example of such a person is a maniacal perfectionist whom no one could ever please or satisfy.ReferencesALFRED ADLER'S â€Å"INDIVIDUAL PSYCHOLOGY†. Retrieved April 10th, 2007 from http://www. s onoma. edu/users/d/daniels/adler. html.ALFRED ADLER. Retrieved 10th April 2007 from http://www. muskingum. edu/~psych/psycweb/history/adler. htm#Theory Alfred Adler (1870-1937). Retrieved 11th April 2007 from http://brainmeta. com/personality/adler. php.BIOGRAPHICAL SKETCH OF ALFRED ADLER. Retrieved April 11, 2007 from http://ourworld. compuserve. com/homepages/hstein/adler. htm In Cambridge Advanced learner’s Dictionary. Retrieved 11th April, 2007 from http://dictionary. cambridge. org/results. asp? searchword=opthamologist&x=12&y=8.In Encyclopedia Britannica. Retrieved April 3, 2007, from Encyclop? dia Britannica Online: http://www. britannica. com/eb/article-9003744.North American Society of Adlerian Psychology. NASAP : . Retrieved April 12th, 2007 from http://www. alfredadler. org/.Personality Theory, Alfred Adler. Retrieved April 12, 2007, from http://webspace. ship. edu/cgboer/adler. html.Psychography : Alfred Adler. Psychography. Retrieved April 9th 2007, from http://f aculty. frostburg. edu/mbradley/psyography/alfredadler. html.The Holy Bible, King James Version. THOMAS NELSON, PUBLISHERS. Nashville. Camden. Newyork. The Oxford Talking Dictionary, 1998 Edition.

Foreign exchange rish in financial institutions in Pakistan - Free Essay Example

Sample details Pages: 15 Words: 4567 Downloads: 6 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Abstract Companiesà ¢Ã¢â€š ¬Ã¢â€ž ¢ especially multinational companies and financial institutes like banks and insurance companies are now exposed to foreign currency risks caused by unexpected movements in exchange rate. In order to survive in this competition age companies have to manage this foreign exchange risk in a planned and good manner. The purpose of this study is to describe the different types of risks faced by financial institutions in Pakistan. Don’t waste time! Our writers will create an original "Foreign exchange rish in financial institutions in Pakistan" essay for you Create order These risks may include translation risk, transaction risk and operating risk. Research also includes the management and measurement of foreign exchange risk and studies the different methods of hedging this risk. The research was conducted through internet, analyzing the financial reports of different financial institutes and face to face interviews conducted from different executives of different financial institutes. Foreign exchange risk has a great impact on the cash flows and operating profits of an organization while doing business abroad and organizations have to familiar to manage and hedge this risk by using different derivatives and choose the best method that is suitable to organization. Managing the foreign exchange risk through hedging and use of derivatives is very common in these days. Organization often uses leading and lagging technique and less uses the swaps and invoice currency methods. 1- Introduction In this section the back ground of the research will be presented. On the basis of back ground we will make a research question and then followed the proposition for a financial institutionà ¢Ã¢â€š ¬Ã¢â€ž ¢s foreign exchange risk. 1.1 Background of the study With the fast development of economic globalization since 70à ¢Ã¢â€š ¬Ã¢â€ž ¢s of last century, today companies operate in as integrated world marketplace. The international market produces the global producer, supplier, customer and also global competitors. Now a dayà ¢Ã¢â€š ¬Ã¢â€ž ¢s money has no national boundaries. Meanwhile the increasing global business has brought many new problems and opportunities for organizations. They also facing different kinds of risks involving operation risk, investment risk and financing risk etc. to be familiar with those risks and how to hedge and control these risks is very important for organizations. Especially the foreign exchange risk is placed at the top of the risks to be concerned for an effective management. Multinational corporations and multinational enterprises are the entities that operate in at least two countries in both ways i.e production and rendering services. Recently foreign exchange risk has got the increasing importanc e in both sectors corporate and literature. Focusing on different aspects, a no of studies have been done in order to develop the theory and provide the facts of corporate sector in foreign exchange risk. Some of them like Charles, Ronald and Herman tried to study the exchange rate behavior and others like Anderson Bollerslev, Diebold and Paul attempted to study the volatility of exchange rates. Present monitory system is illustrate by a mix of floating and managed exchanged rate policies that every country perused in its best interest. Any appreciation of a currency against other will bring export down and vise versa. Financial institutions must understand the foreign exchange risk in order to compete, survive and grow in their business of exports and to avoid from competition in imports. ________________________________________________________________________ https://en.wikipedia.org/wiki/Multinational_corporation 1.2 Research questions What exchange risk does a financial institute face and whether they hedge it or not. Whether these institutions used derivatives instruments to hedge exchange rate risk or not. What derivatives are used by these financial institutions in order to hedge the exchange risk? How these organizations measure the exposure of foreign exchange. What would be the objectives of foreign exchange risk management in financial institutions in Pakistan 1.3 Purpose Main purpose of this research is to describe the actual condition of foreign exchange risk in financial institutions in Pakistan. And how these organizations manage this risk and what efforts are done by these organizations to hedge the risk. 1.4 Disposition Chapter one: Introduction Content: This part is that where the research topic was introduced along with the importance of the foreign exchange risk management, the background of study and our purpose of study. The research problem and questions has been brought up, and we provide reader with our research purpose. Chapter two: Literature review Content: it is the literature review part. It will include the theory of foreign exchange risk management concepts of foreign exchange risk, its classification, characteristics, and different methods and techniques to manage and hedge this risk. Chapter three: Research methodology Content: This part is about the methods and techniques used for research purpose that how the data will be gathered analyzed and how to reach the conclusion. Chapter four: Empirical findings Content: In this part of thesis research will be done with the help of annual reports of different organizations. The study will help in analyzing that how these organizations manage this risk and what techniques are used by them. Chapter five: Comparative Analysis Content: In this chapter we will compare the data gathered from different financial institutions and find out the managing methods used by them. Chapter six: Conclusions and Recommendations Content: this part will contain the summary of our findings, implication and results answering the research questions of existing theory. It will also contains the recommendation for future research that may evaluate this research 2. Literature Review It is the review of literature regarding the foreign exchange risk management. It also includes the concepts, characteristics by types and different methods of hedging this risk. 2.1 Foreign exchange risk 2.1.1 The concept of foreign exchange risk What is foreign exchange risk? Different authors and researchers define exchange risk in different ways. Niso abuaf defines à ¢Ã¢â€š ¬Ã…“foreign exchange risk is the chance that fluctuation in the exchange rate will change the profitability of a transaction from its expected valueà ¢Ã¢â€š ¬?. (P.29)This definition is in terms of financial risk. Cornell and Shapiro (P.45) also define foreign exchange risk as à ¢Ã¢â€š ¬Ã…“variability in the value of a firm as measured by the present value of its expected future cash flows, caused by uncertain exchange rate changes. In this definition both the researchers emphasize the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s cash flows. Hekman (60) defines exchange risk in terms of control of firms as the possibility that operating and financial results may exceed or fall short of budget. Foreign exchange rate risk is the potential gain or loss resulting from a change in exchange rate. It is the risk arising from the adverse movements in exchange rate to the earnings and capital. It is the impact of adverse movement in currency exchange rate on the value of open foreign currency position. Banks faced this risk that arises from maturity mismatching of foreign currency positions. Banks also face the risk of failure to pay of counter party in foreign exchange business. While such type of risk crystallization does not cause primary loss, bank may undertake new transaction in cash/spot market for replacing the failed transactions. ____CGAP Portfolio, à ¢Ã¢â€š ¬Ã…“Are MFIs Hedging Their Bets? Issue 1, April 2005 Major categories of exchange rate changes are given as follow: Depreciation: it is the ongoing decline in the value of currency in the relevance of another currency. Devaluation: it is the sharp fall in the value of currency in comparison of another currency. Appreciation: it is the gradual increase in the value of currency in comparison of another currency. For example, a financial institution that has no t managed its foreign exchange risk will Lose money through currency depreciation when the value of local currency falls as compared to the currency in which the liability is held. That is, if a financial institution say bank has borrowed in US Dollars and giving debt in local currency PKR will suffer a loss if the value of rupee falls against Dollars. It must have more PKR to service the Dollar based debt. 2.1.2 Classifications of foreign exchange risk Ankrom (1974) was the first writers who classify the foreign exchange risk in different categories. Many other writers and researcher also classified foreign exchange risk in different types. These authors include Walker (1978), Whilborg (1980), Dumas (1984), and Shapiro (1989). Following are three main kinds of foreign exchange risk, Translation exposure Transaction exposure Operating exposure These risks are further defined by Shapiro in 2006. à ¢Ã¢â€š ¬Ã…“Translation exposure, also known as accounting exposure, arises from the need for purpose of reporting and consolidation, to convert the financial statements of foreign operations from the local currency (LC) involved to home currency (HC). If exchange rate has changed, liabilities revenues, expenses, gains and losses that are denominated in foreign currency will result in foreign exchange gain or loss.à ¢Ã¢â€š ¬? This exposure generally affects the balance sheet and those items of income statement that al ready exist. à ¢Ã¢â€š ¬Ã…“Transaction risk, result from transactions that give rise to know, actually binding future foreign-currency-denominated cash inflows or cash outflows. As exchange rate change between now and when these transactions settle, so does the value of their associated foreign currency cash flow, leading to currency gains or losses.à ¢Ã¢â€š ¬? This exposure affects the cash flows of an organization which can be the result of an existing contractual obligation. For example this risk may affect the transactional account like receivables (export transactions) and payables (import transactions) or repatriation of dividends. à ¢Ã¢â€š ¬Ã…“Operating exposure, measures the extent to which currency fluctuations can alter a companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s future operating cash flows, that is, its future revenues and costs. The firm faces operating exposure the moment it invests in servicing a market subject to foreign competition or in sourcing goods or inputs abro ad. This investment includes new-product development, a distribution network, foreign Supply contracts, or production facilities.à ¢Ã¢â€š ¬? This risk also affects cash flows but impacts revenues and costs associated with future sales. The combination of two exposures i.e transaction exposure and operating exposure is also called economic exposure as said by Shapiro. This economic exposure actually affects the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s present value of future expected cash flows from exchange rate movement. Economic risk concerns the effect of exchange rate changes both on revenues (domestic sales and exports) and operating expenses (domestic input costs and imports). It is very crucial for firms to establish a strategy of managing the foreign exchange risk as they have the clear identification of various types of currency risks along with their measurement. 2.2 Measurement of foreign exchange risk For the multinational firms, they must have to face the foreign exchange risk. It is very important for them to exactly measure the foreign exposure faced by their organization. 2.2.1 Measurement of translation risk History describes four principals method for translation. These are given as follow: The current/non current method The monitory/non monitory method The temporal method The current rate method These can be understood from following table: Note: while translating the income statement sales revenues and interests are generally translated at average historical exchange rate that prevailed during the year, whereas depreciation is translated at appropriated historical rate. Cost of goods sold and some general and administrative expenses are translated at historical exchange rate and other items are translated at current rate. à ¢Ã¢â€š ¬Ã…“Cà ¢Ã¢â€š ¬?= it stands for current rate. That means assets and liabilities are recorded at current prevailing rate. It is the rate at balance sheet date. à ¢Ã¢â€š ¬Ã…“Hà ¢Ã¢â€š ¬?= it shows historical rate. Assets and liabilities are recorded at historical rate that was prevailed during the period. After knowing all the methods of translating the issue arises is that which method should be used among these four methods while translating? Financial accounting standard board (FASB) in its standard 8 which relates to the governance of treatment of translation of foreign currency financial statements from 1975 requires that organizations should use the temporal method for translation of financial statements and the resulting gain or loss from translation should be included in income statement. But this treatment was argued that this produced gains or losses which were not the economic reality of the organizationà ¢Ã¢â€š ¬Ã¢â€ž ¢s business. So any hedging for this translation risk under this method seems not realistic meaning. From the invention of standard 52 published by Financial Accounting Standard Board to the end of 1981, which replaced the FAS 8, require that organizations must use the current rat method for translation purpose. FAS 52 introduced the functional currency, which is identified by each organization for basic economic environment and selected for each of the organizationà ¢Ã¢â€š ¬Ã¢â€ž ¢s foreign entities. If the functional currency is foreign currency, the standard requirement is to use the current rate method for any translation gain and loss that is taken directly to the share holderà ¢Ã¢â€š ¬Ã¢â€ž ¢s equity. Whereas if the functional currency is the parentà ¢Ã¢â€š ¬Ã¢â€ž ¢s company currency, then the rule described by FAS 8 should follow. The above mentioned issues can be referred to the Adrian Buckleyà ¢Ã¢â€š ¬Ã¢â€ž ¢s book named à ¢Ã¢â€š ¬Ã…“Multinational Financeà ¢Ã¢â€š ¬? (2004) (P145-152). https://pages.stern.nyu.edu/~igiddy/fxrisk.htm, à ¢Ã¢â€š ¬Ã…“The Management of Foreign Exchange Riskà ¢Ã¢â€š ¬? by Ian H. Giddy And Gunter Dufey 2.2.2 Measure of economic exposure as Adler and Dumas (1980,19840defined foreign exchange risk as the regression of assetà ¢Ã¢â€š ¬Ã¢â€ž ¢s value on the exchange rate and recommended that exchange rate risk of organizations can be calculated by the sensitivity of stock return to exchange rate activities. Many other researchers like Popper (1997), Bodnar and Gentry (1993) And recently Martin and Mauer (2003, 2005), have been done to explore the foreign exchange exposure. Whereas Holton (2003) indicated that when measuring the foreign exchange risk is difficult it is due to the difficulty of measuring the economic risk. For the measurement of economic risk the method used is value-at-risk (VAR). in broader sense value at risk is defined as the maximum loss for a given risk over a given period of time with z% confidence. This definition was given by micheal papaioannou (2006). 2.3 Foreign Exchange Risk Management 2.3.1 Corporate Objectives of Risk Management After knowing the foreign exchange risk and its measurement faced by the organization, the company should choose to whether hedge this risk or not and further know how this risk should be managed. Oxelheim and wihlborg (1987) with mutual participation produced the idea of currency risk which is given as follow, à ¢Ã¢â€š ¬Ã…“Risk aversion: it relates to the desire of reduction of variability of cash flows in businessà ¢Ã¢â€š ¬? à ¢Ã¢â€š ¬Ã…“The target variable: in summaries form these are the efforts of the organization to maximize or to stabilize, measurement in accounting or cash flow, measurement in nominal or real terms.à ¢Ã¢â€š ¬? An effective foreign exchange risk management requires definite objectives viewing managementà ¢Ã¢â€š ¬Ã¢â€ž ¢s approach toward the foreign exchange risk. The decision making of hedging or not to hedging the foreign exchange exposure depends upon the attitude of companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s management towards exchange risk management. Hedging strategy varies from organization to organization. Whenever there is a risk the risk aversion companies try to hedge this risk whereas the risk taking companiesà ¢Ã¢â€š ¬Ã¢â€ž ¢ leave this risk unhedged. This is the idea arises from management of financial risks that management of financial risk is unnecessary and the gain and loss is will at last equalize in term of equilibrium relationship in the international financial market. This idea was given by Dufey and Sirininasulu in 1984: à ¢Ã¢â€š ¬Ã…“Foreign exchange risk does not exist; even if it exists, it need not be hedged; even it is to be hedged, corporations need not hedge it.à ¢Ã¢â€š ¬? It is the general concept that the organizations involved in exports and imports should hedge the risk of foreign risk exposure as a risk averse attitude. In real terms companies prefer to manage the risk within an acceptable limit instead of adopting neither of the two attitudes. Management should be in charge for ensuring to ta ke suitable and reasonable actions based on after-tax term to decrease the risk. 2.3.2 Theoretical appraisal of managing foreign exchange exposure it is the basic strategy of the organizations to hedge the foreign exposure that they increase hard currency assets and decrease the soft currency assets, at the same time decreasing the hard currency liabilities and increasing the soft currency liabilities. However, many debates relating to the hedge the translation exposure exist in finance literature. Pramborg (2002) pointed out that transaction exposure hedging comes to add value for Swedish companies whereas there is no value addition from translation exposure. Butler (1990) suggested that it support the general suggestion of the finance literature not to worry about this type of risk, so it might not be hedged. A reason for not hedging this risk is that translation exposure risk is uneconomic as it is based on historical book value and has no direct effect on organizationà ¢Ã¢â€š ¬Ã¢â€ž ¢s cash flows. Thus organization should concern to the exposure faced to the cash flows. Earlier experimental studies by Belk and Glaum ( 1990) and Aobo (1999) who have investigated the foreign exchange risk management in UK and US multinationals, show that the management of transaction exposure is the focal point of company exchange risk management for the transaction risk control the real cash flows. As compared to translation and transaction risk operating risk is less defined and more difficult to manage. It could be defined as the sensitivity of an organizationà ¢Ã¢â€š ¬Ã¢â€ž ¢s future cash flows to the unexpected change in foreign exchange rate and any change in aggressive environment caused by these currency movements. Belk and Glaum (1990) found that firms were less worried about the real impact of exchange rate varies on the competitive position of the companies. Bradley and Moles (2002) find that there is a strong relations ship between exchange rate sensitivity and the extent to which it sales, sources and funds itself worldwide. Shapiro (2006) argued that it could be concluded that organizationà ¢Ã¢â€ š ¬Ã¢â€ž ¢s operating exposure is attributed to distinguish a companyà ¢Ã¢â€š ¬Ã¢â€ž ¢s product is, the internationaly expand its competitors is, the ability to shift production, the sourcing of inputs among countries, and the variation in real exchange rate. It is assumed that the firms more involved in foreign markets the greater would be the operating risk faced by the organization. Shapiro (2006) concluded that firms can easily hedge their transaction risk, competitive exposure (operating exposure) are long term and can not be dealt with exclusively through financial hedging techniques, they relatively require making the long term operating adjustment. Strategic reorientation of operating policies related to pricing, sources, location of production and financing needs not only financial managers but also requires the corporate managers. Moffet and Karlsen (1994) illustrate the use of production, financial and promotion policies to manage economic currency risk as natural hed ging. Being a part of globalization business environment, diversification of international operations is very important for multinational corporations to handle operating risk. So this can give the companies to maintain competitive advantage and protective reactions to unfavorable exchange rate changes. Whenever service cost or domestic production cost is affected by exchange rate changes as compared to those of producing in foreign country, the firm can move product sourcing from those countries whose currency is devalued or plant transfered there. Strategic marketing and production regulations in general are for à ¢Ã¢â€š ¬Ã‹Å"cost-effectiveà ¢Ã¢â€š ¬Ã¢â€ž ¢. Another operational process used to hedge operating exposure is financial management, which are formating the firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets and liabilities. One option is to funding the portion of a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s assets used to create export profits so that changes in foreign assets values caused by an exchange ra te change are compensate by virtual changes in the debt expense in the same currency. For example, a firm should hold debt in currency of a foreign country, in which the firm increases a considerable export market. Existing text such as Glaum (1990) suggests economic exposure management should be integrated into the long-range, strategic planning system of the corporation and included with all areas of corporate decision-making. Tools and techniques for foreign exchange risk management Nowadays foreign exchange risk could not only control a firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s quarterly earnings, but Also decide its survival. A variety of financial implements come into sight as the financial markets require managing the different increasing exposure that firms face. For Managing foreign exchange risk, there exist internal techniques such as matching inflows and outflows, inter-company netting of receipts and payments, transfer pricing agreement, etc, and external hedging tools involve the usage of different sorts of derivatives including forwards, futures, debt, options and swaps. Each of these techniques differs to hedge different exchange risk in each company situation. There have been many studies concerned with the effect from the use of these Currency derivatives, e.g. recent study as Allayannis and Ofek (2001), Bengt Pramborg (2002). Foreign exchange forwards A forward foreign exchange contract is a contract to exchange one currency for another with a particular amount, where the exchange rate is fixed on the day of the contract but the actual exchange takes place on a fixed date in the future. The predetermined exchange rate is also known as the forward exchange rate. The amount of the contract, the value date, the payments method, and the exchange rate are all mentioned in contract at the time of contract. Forward contracts in major currencies are available on daily basis with maturities of up to 30-, 90-, and 180-day. Two types of forwards contracts are often used: deliverable forwards (face amount of currency is exchanged on settlement date) and non-deliverable forwards (which are settled on a net cash basis). A currency forward contract is usually used to hedge exchange risks that ranges from short to medium term and whose timing is known for certainty. It is so important for Firmà ¢Ã¢â€š ¬Ã¢â€ž ¢s treasurers to dea l in the forward market that they can fix the costs of imports and exports in advance for the payable or receivable amount and hedge the exchange risk. A lot of experimental researches such as Belk et al. (1992), Bodnar et al. (1995), Mallin et al (2000) and Pramborg (2002) pointed out that the most commonly used method is forward exchange contract. With forwards, the firm can be totally hedged. However, some exposures including settlement risk that exchange rate shift in the opposite direction as they predicted, and counter party risk which the other party is unable to perform the contract. Sometimes the high cost of forward contracts prevent Firms to implement this instrument to fully hedge their exchange exposure. For that reason, futures are more beneficial. Currency futures Currency future is another tool to decrease the exposure of foreign exchange instability It is an exchange-traded agreement specifying a standard amount of a particular currency to be replaced on a specific future payment date. It is likely to forward contract in a way that they permit a firm to buy or sell definite currency at a fixed price and at a future time. So far, there are some differences among these two sorts of practices. One of the futures distinctiveness vary from forward is that futures are standardized both for amount and payment date (normally March, June, September and December), whereas Forwards are for any amount and any delivery date upon which the two parties are agreed. One more difference is that forwards are dealt by phone and telex and are completely independent of locality or time while all clearing functions for futures markets are hold by an exchange clearing house. The biggest difference is in terms of liquidation that futures contr acts are settled by balancing of gains and losses for each day, whereas forward contracts are settled by real delivery whether full delivery of the two Currencies or net value only at the contract maturity. Giddy and Dufey said à ¢Ã¢â€š ¬Ã…“This daily cash compensation attribute mostly eliminates default risk.à ¢Ã¢â€š ¬? Futures market and forward market both are of most important ways to hedge risk. David Tien (2002) pointed out à ¢Ã¢â€š ¬Ã…“Firms uncomfortable with the uncertainty involved in receiving a fixed payment in foreign currency can easily hedge the transaction using either futures or forward contracts.à ¢Ã¢â€š ¬? Some studise as Belk and Glaum (1992) establish that none of the firms which were talked used currency futures, because the standardized features of exchange traded futures most often do not enable the companies to hedge their positions completely. Mallin et al (2000) also found that only 9 companies out of 231 respondents to their s urvey used currency futures. Giddy and Dufey conclude that à ¢Ã¢â€š ¬Ã…“forwards and futures serve similar purposes, and tend to have identical rates, but differ in their applicabilityà ¢Ã¢â€š ¬?. The largest part of big companies use forwards; futures tend to be used whenever exchange risk may be a problem. Currency options A foreign exchange option which is dissimilar from currency forward agreements and currency futures is to give the possessor of the contract the right to buy or sell a definite amount of a certain currency at a prearranged price (also called strike or exercise price) until or on a specified date, but he is not bound to do so. The seller of a currency option has obligation to execute the contract. The right to buy is a call position and the right to sell is a put position. There is option premium required to pay by those who acquire such a right. The holder of a call option can take advantage from a price increases (profit is the difference between the market price and the strike price plus the premium), while can choose not to exercise the right when the price decreases (locked in loss of the option premium). Vice versa is the situation for the holder of a put option. For the advantages of simplicity, elasticity, lower cost than the forwards, and the expected maximum lo ssà ¢Ã¢â€š ¬Ã¢â‚¬ which is up to the premium paid to acquire the right , the currency option has become growing popular as a hedging tool to protect firms against the exchange rate movements. Whenever there is insecurity in the size of cash flows and the timing of cash flows, currency option agreements would be better to conventional hedging instruments such as forward contracts and futures contracts. Grant and Marshall (1997) observed the degree of derivative use and the motives for their use by carried out surveys in 250 large UK companies, found that a extensive use of both forwards and options(respectively 96% and 59%). They pointed that comparing the most important reasons for the use of forwards were company policy, business reasons and risk aversion, A good understanding of instrument, and price were prominent while the primary reasons to use option for company management. Currency swaps As a virtually new financial derivative used to hedge foreign exchange exposure, currency swaps have a rapid advancement. Since its introduction on a global scale is in the early 1980à ¢Ã¢â€š ¬Ã¢â€ž ¢s, currency swaps market has turn into one of the leading financial derivative markets in the world. A currency swap is a foreign exchange agreement among two parties to exchange a given amount of one currency for another and, after a particular period of time, to give back the original amounts exchanged. It can be negotiated for a broad range of maturities up to at least 10 years, and can be regarded as a series of forward contracts. It is normally used under such circumstances that a firm functions in one currency but need to borrow in another currency. Currency swaps are frequently connected with interest rate swaps, as the common cross currency swaps the cross-currency coupon swap which is to pay fixed and get floating interest sum meantime buying the currency swap. Another generally used one is cross currency basis swap which is to pay floating interest in a currency and receive floating interest in another currency. The benefit of currency swaps is to facilitate each contracting part to borrow in their relative constructive market, and both parties can benefit from the swaps by lessening the borrowing costs. The use of swaps now has developed rapidly in western countries such as Grant and Marshall (1997) found that the use of swaps and forwards/futures is dominant in UK, Bodnar et al. (1995) found that swaps govern for interest rate risk management in US.