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Foreign exchange risk, interest rate and exchange rates

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In international cash management, managers have a choice between managing only foreign exchange risk or managing foreign exchange and interest rate risk together. Considering only nominal changes in exchange rates and nominal interest rates, do you expect the inclusion of interest rate risk in the analysis to suggest that the cash portfolio is more or less risky than an examination of foreign exchange risk or foreign exchange and interest rate risk together? Answer as completely as possible.

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Foreign exchange risk, interest rate and exchange rates are discussed in the solution.

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Both the risks: Foreign exchange rate risks and interest rate risks are market risks which can significantly affect organization's revenues and profitability with respect to international financial transactions involving two or more currencies.

Exchange rate risks are inherent in the international business transactions, therefore, they have to be properly dealt with by using ...

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Sandeep Bardia, MBA
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  • BCom, SGTB Khalsa College, University of Delhi
  • MBA, Rochester Institute of Technology
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