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Risk of Exposure from Import/Export

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Companies that import or export goods from other countries are exposed to risk because of currency fluctuations. Explain how a company might minimize its risk of exposure. Is there a way to eliminate all uncertainty related to fluctuations in currency? Explain why or why not.

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Solution Summary

This solution is 247 words and explains why the currency risk cannot be eliminated.

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The typical way to reduce currency risk is to buy derivatives that hedge your foreign currency. That is, you buy a security that moves in an opposite direction of the asset or cash flows that occur in the foreign currency so that currency moves offset. That is, if the currency shifts in your favor in terms of assets and cash flows, it ...

Solution provided by:
Carol Sargent, PhD
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  • BSc, University of Virginia
  • MSc, University of Virginia
  • PhD, Georgia State University
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