Management of Exchange Rate Exposure and Risk

The exchange rates risk that is associated with economic, transaction, and translation exposure in Indian market. From the analysis, anticipate the fluctuations that seem to occur in the next 24 months

Global business today is subject to various kinds of risks. One risk that global business needs to handle is the foreign exchange risk. Foreign exchange risk is the risk when companies face a potential gain or loss due to the fluctuation of an exchange rate change. Companies can be subject to a significant financial loss, even with a small change in the exchange rate. Thus, the primary purpose of managing foreign exchange risk is to mitigate potential currency losses. There are at least three strategies companies use to manage their foreign exchange risk. They are forward contracts, currency swaps and “natural” hedges. Companies like Airbus, Tohoku Electric Power Company and Toyota utilized these strategies to reduce potential currency losses.

Exchange rate risk, also called as ‘currency risk’ is the risk arising from currency fluctuations. Volatile exchange rates can reduce cost and productivity advantages gained over years of hard work. Firms exposed to international economy face this risk. When a firm has already committed to a foreign currency denominated transaction, the firm is exposed to a exchange rate risk. The firm will incur a

Usually, the most common risk management strategies can be subdivided into multi-stage approach in order to obtain a better impression of the underlying risks and thus to increase the probability of mitigating the firm’s risks properly and successfully. Also General Motors Corporation has developed various rules and guidelines to help manage minimize the risks associated with their business and investment operations.

Boral Group has been exposed to changes in interest rate, foreign exchange rates and commodity prices from its activities. Transactions in foreign currencies must be translated at the foreign exchange rate ruling at the date of the transaction. (Boral Limited, 2010) According to the notes of Boral Limited, the sensitivity analysis is used in adjusting the interest rate and currency risks in order to prevent the changes arising from changes of the interest rate and the currency rate from making an impact on the consolidated earnings. For example, at 30

Effective planning & execution of risk assessment procedure in all financial & operating sectors to identify potential risk to organization.

To study this subject, the author used a questionnaire of MNCs, choosing the largest 600 questionnaires from the UK, USA, Australia, Hong Kong, Japan, Singapore and South Korea. A total of 179 usable responses were received and this was the basis of the paper. The questionnaire covered a number of different subjects, including the importance of foreign exchange rate risk management, the objectives of managing foreign exchange rate risk, the degree of emphasis on transaction risk, the degree of emphasis on translation risk, the degree of emphasis on economic risk, and whether the respondent manages translation risk internally. The questionnaire also sought to understand some of the techniques that firms in the different regions used, for example pricing strategy, operating hedges, and planning. Where economic risk was not managed, the author sought to find out why the company had chosen not to manage this type of risk.

3.2.2. Assess risks: After the organization’s has identified the risks then likelihood of their occurrence is determined then multiplied by their influence on the organization's operations The team must develop an understanding of the nature of the risk and its potential to affect organization’s goals. The step assist in decision making thus to avoid spending too much money and time reducing risks that may pose little or no threat to organization.

Every day of our daily lives we are exposed to a large variety of risks. Those risks can include large financial losses that may occur from investing in the stock market, to damage to your vehicle while driving to work, or fire damaged to your property while on vacation. All those unforeseen events can have the ability to drain all your financial resources, which can cause some major damage to your financial goals and stability. Personal risk management is important because it helps reduce and sometimes eliminate those potential risks. By managing and assessing risks we can alleviate potential financial losses and ensures that our way of life can remain unaffected by those unforeseen events. (Personal Risk Management, 2016). Together there are five risk management steps that are combined to deliver a simple and effective risk management process. Those steps include identifying the risk, analyzing the risk, evaluating and ranking, treating the risk and finally monitoring and reviewing the risk while implementing changes as needed (Schurr, 2016)

This paper discusses how companies are managing the foreign exchange risk through the use currency options. For instance, some companies who didn’t not take risk management seriously had resulted in inefficient use of capital, increased liabilities, and reputation risk. Moreover, a lack of certainty can cause confusion as to what a company’s acceptance of risk is, such as a level of acceptance. Without risk management, a company can become overconfident in its methods, which could lead to a financial crisis. The failure to objectively take risks leads to bad results like a company taking inappropriate risks not in the best long-term interests of the firm. Furthermore, poor risk management in finance could amount to

Exhibit 7 from the case study describes the currency development in medium term of the GBP and EURO against the dollar. We can observe that the currencies are exposed to high volatility, which means the company may register greater risk

Our team has written this briefing note in order to inform you of the risks associated with fluctuations in exchange rates and how that risk relates to our organization; Coca-Cola Enterprises Inc. (CCE).

Currency derivative can be defined as a contract or financial agreement to exchange two currencies at a given rate or a contract whose value is derived from the rate of exchange of two currencies on spot (Shoup, 1998). Currency derivatives are developed and adopted to implement a strategy known as hedging, in which an organisation acquires a contract in order to offset an expected drop or rise in value of a position or future cash flow (Belk & Edelshain, 1997). This essay will outline the incentives and rationales behind an organisation that uses currency derivatives.

Risk management is an activity which integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Some traditional risk managements are focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death). Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments. Objective of risk management is

It was observed during the recent emerging market crises that as soon as an inflexible exchange rate and other financial sector weaknesses became apparent in an economy, institutional investors and currency speculators were attracted toward it, making a currency crisis imminent (Das 1993).  Exchange rates create a risk to a business like Unilever. A bad exchange rate creates the need for Unilever to increase the prices; a positive exchange rate gives a firm the chance to earn more income.  Unilever always monitors the financial status of the country they operate in, it always checks for any changes in the exchange rate and other economic indicators. The company’s local strategy is based from the exchange rate.  Since exchange rates are unpredictable, Unilever makes sure that it has contingency plans to ensure that any abrupt change in the exchange rates would not cost