Managing foreign exchange risk

Foreign Exchange Market


Managing foreign exchange risk:

- Companies that import and export are often asked to make commitments for the purchase or sale of goods for delivery at the time, with payment to be made in foreign currency.

- Once, a firm enters into a transaction that exposes the cash flows in foreign currency, it is exposed to exchange rate risk.

- Options available to the company for insurance against currency risk relates to the following:

(A) Shareholding structure

(B) diversification across different countries-business in different countries

(C) Cost of hedging risk