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Foreign Exchange Risk. Dr Kishor Bhanushali www.ibmajor.wordpress.com. Introduction. Business environment: Internal Environment and External Environment Ever-changing business environment and Risk Macro risk factors Business risk factors Risk: variability in operation variable.
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Foreign Exchange Risk DrKishorBhanushali www.ibmajor.wordpress.com
Introduction • Business environment: Internal Environment and External Environment • Ever-changing business environment and Risk • Macro risk factors • Business risk factors • Risk: variability in operation variable
Foreign Exchange Exposure and Risk • Business firm engaged in international transactions • Dealing in foreign currencies • Foreign exchange exposure and foreign exchange risk • Increase in the volume of cross border transactions • Trade and financial flows • Transaction exposure: Accounting exposure • Economic exposure • Transaction exposure and Operating exposure
Management of Foreign Exchange Risk • Assessing the extent of variability and identifying whether it is likely to be favorable or adverse • Deciding whether to hedge or not all or part of the exposure • Choosing the optimal hedging technique to suite the situation
Techniques for Hedging Transaction Risk • Forward Hedge • Future Hedge • Money Market Hedge • Currency Option Hedge • Cross Hedging
Internal Hedging Strategies • Leading and Legging : advancing and lagging in payment • Currency diversification • Risk Sharing • Invoicing • Netting and offsetting
